BECCLE would like to welcome you to this joint BECCLE and NHH (Micro research group) seminar on the pricing in petrol markets, which will take place at NHH on November 18.

For a long time there has been debate in many countries about the pricing in petrol markets. One question that has been frequently discussed, is whether the petrol price cycles that have been observed in many countries, is a sign of competition or collusion. At this seminar, Yiming Liu will discuss pricing behavior in petrol markets, with a particular focus on how behavioral models can help us to understand the toughness of price competition in these markets.

Yiming Liu, post doc at the Humboldt University of Berlin.

Title: Pricing in petrol markets
Speaker: Yiming Liu, post doc at the University of Humboldt
Date and time: November 18, 12.15-13.30
Location: Department of Economics at NHH, Room E209/E210

Abstract of paper:
We show how cognitive constraints systematically shape pricing behavior in a firm with over 20,000 gas stations. Consistent with insights from behavioral models of bounded rationality, station managers with lower cognitive skills have biased mental models. These underestimate competitor sophistication and competitor retaliation for price cuts, and thus place more confidence in the efficacy and profitability of low prices. In the field, managers with lower cognitive skills set lower prices, and engage in more price wars. The resulting lower prices reduce profits and producer surplus, but increase consumer surplus and improve overall market efficiency.