Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market

This article studies dynamic pricing strategies in the Italian
gasoline market before and after the market leader unilaterally
announced its commitment to adopt a sticky-pricing policy. Using
daily Italian firm level prices and weekly average EU prices, we
show that the effect of the new policy was twofold. First, it
facilitated price alignment and coordination on price changes.
After the policy change, the observed pricing pattern shifted from
cost-based to sticky-leadership pricing. Second, using a dif-in-dif
estimation and a synthetic control group, we show that the causal
effect of the new policy was to significantly increase prices
through sticky-leadership pricing. Our paper highlights the
importance of price-commitment by a large firm in order to sustain
(tacit) collusion.