The Impact of Price Ceiling Regulation: Evidence from the Retail Gasoline Market

We examine the short-run impact of price ceilings on retail gasoline prices in isolated oligopolistic markets, uniquely observing for which stations the regulation was binding and for which it was not. Leveraging daily pricing data and a difference-indifferences methodology, we find that, while binding stations naturally lowered prices, non-binding stations increased theirs, though there is substantial heterogeneity. Among non-binding stations, those with more favorable characteristics for collusion adjust prices faster, move closer to the ceiling, and exhibit lower price dispersion, consistent with more effective coordination.

Our results provide evidence that the price ceiling acted as a focal point for collusion among non-binding stations, consistent with channels identified in tacit collusion theory.