Price ceilings as focal points for tacit collusion: evidence from credit cards
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.
