"Retail price cycles and the presence of small firms"
JEL codes: D4
Keywords: price cycles, gasoline prices
Abstract: In many Canadian cities, retail gasoline prices remain unchanged for weeks at a time, while in other cities, retail prices cycle, increasing sharply and declining slowly. One model that generates both rigid retail prices and cycles is given in Maskin and Tirole (1988). I extend this model to consider the role of the number of retail outlets operated by each firm. Constant price equilibria are found to exist only when firms are of similar size. However, cycle equilibria can be constructed for a wide range of relative sizes. These results are consistent with empirical and anecdotal findings.