We examine a unique five-year equilibrium transition in the retail gasoline industry using hourly station-level price data. In an attempt to increase profit margins under a focal pricing structure under strategic uncertainty, price leaders in the market alter asymmetric firms’ incentives to coordinate on prices, spurring bargaining over other features of the pricing structure that determine how profits are shared. Such bargaining occurs through platform-enabled, price-based communication, whereby firms make offers and counteroffers over profit shares, learn rivals’ pricing strategies, and reveal their own. After three years of bargaining without resolution, including experimentation with multiple forms of price wars, price leaders adapt the pricing structure to using price signaling for coordination and enable stable, shared long-run growth in profits. We discuss implications for the theory of collusion and for antitrust policies aimed at limiting the anticompetitive effects of digital information sharing and pricing algorithms.
