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American Economic Review: Vol. 93 No. 5 (December 2003)

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Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards

Article Citation

Knittel, Christopher R., and Victor Stango. 2003. "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards." American Economic Review, 93(5): 1703-1729.

DOI: 10.1257/000282803322655509

Abstract

We test whether a nonbinding price ceiling may serve as a focal point for tacit collusion, using data from the credit card market during the 1980's. Our empirical model can distinguish instances when firms match a binding ceiling from instances when firms tacitly collude at a nonbinding ceiling. The results suggest that tacit collusion at nonbinding state-level ceilings was prevalent during the early 1980's, but that national integration of the market reduced the sustainability of tacit collusion by the end of the decade. The results highlight a perverse effect of price regulation.

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Authors

Knittel, Christopher R.
Stango, Victor


American Economic Review


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