Retail Gasoline Price Ceilings and Regulatory Capture: Evidence from Canada

We evaluate the efficacy of price ceiling legislation by employing weekly data on retail gasoline prices for eight cities in Eastern Canada between 1999 and 2007. The use of these data allows us to pool "treatment" cities in the Atlantic provinces with "control" cities in Ontario and Quebec. Ordinary least squares and instrumental variables estimates demonstrate that the enactment of such regulation is significantly correlated with higher prices. A potential explanation for these results is that price ceilings act as "focal points" enabling firms to set higher prices, thus suggesting the possibility of regulatory capture. (JEL K23, L13, L51)