Germany proposed limiting petrol stations to one price increase per day. The question: when should the reset occur?
Siemroth models spatial competition among petrol stations using actual German pricing data. Prices peak at 7:00 AM when commuters have inelastic demand. They bottom out at 7:00 PM when consumers can shop around. A one-increase-per-day rule constrains stations to choose their moment carefully — raise the price once and it stays up.
The optimal reset hour is 11:00 AM. At this time, the resulting equilibrium price is constant throughout the day. Not lower at some hours. Not higher at others. Flat.
This is counterintuitive. A regulatory constraint — you may only raise prices once — combined with a specific timing choice — the reset happens at 11:00 — produces perfect price smoothing. The morning spike disappears. The evening trough disappears. The daily price variance that characterizes fuel markets is eliminated by a single parameter choice.
The mechanism: resetting at 11:00 means stations cannot exploit the morning demand peak (it occurs before the reset, so yesterday's price applies) while the afternoon and evening see the single permitted increase already deployed. The interaction between consumer traffic patterns, price sensitivity by hour, and the constraint produces an equilibrium that a regulator designing a dynamic pricing rule could not easily improve upon.
A binary constraint (one increase) plus a well-chosen clock produces what continuous pricing optimization cannot: temporal price uniformity.