Price ceilings as focal points to reach price uniformity: Evidence from a Chinese gasoline market |
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| Affiliation: | 1. University of Pécs Faculty of Business and Economics, Department of Economics and Econometrics, 80. Rákóczi Street, 7622 Pécs, Hungary;2. Regional Innovation and Entrepreneurship Research Center (RIERC) University of Pécs Faculty of Business and Economics, Hungary;3. Vienna University of Economics and Business, Department of Economics, 1. Welthandelsplatz, 1020 Vienna, Austria;1. School of Development Studies, Yunnan University, China;2. Key Research Institute of Yellow-river Civilization and Sustainable Development, Henan University, China;3. Institute of Renewable Natural Resources, University of the Philippine Los Baños, Philippines;1. Faculty of Construction Management, University of Transport and Communications, Hanoi, Vietnam, No.3, Cau Giay Street, Lang Thuong, Dong Da District, Hanoi, Viet Nam;2. Master''s Program in Infrastructure Engineering, VNU, Vietnam Japan University, Hanoi 129000, Luu Huu Phuoc Road, My Dinh 1 Residential Area, Cau Dien Ward, Nam Tu Liem District, Ha Noi, Viet Nam;3. Department of Civil Engineering, Graduate School of Engineering, The University of Tokyo, 7-3-1, Hongo, Bunkyo-ku, 113-8656 Tokyo, Japan |
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| Abstract: | This paper studies the price uniformity in the Chinese gasoline market, using station-level data of Hohhot city, Inner Mongolia. We first document that the mode prices of the gasoline stations are consistent with the price ceilings set by the government, implying that the price ceiling regulation in the Chinese gasoline market may serve as a focal point for the gasoline stations to reach price uniformity. We corroborate the focal point hypothesis by providing evidence showing that some stations would “jump” to the ceilings as their prices approach the ceilings. Also, we find that local market structure, distance between stations, station capacity, market characteristics, and past pricing behavior could affect the probability of gas stations to price at the ceilings. Moreover, a higher price ceiling would reduce the probability that stations reach price uniformity. Our results provide another piece of evidence to the literature regarding the unintended effect of price ceiling regulation. |
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