Price discrimination and competition in a retail gasoline market : a case study from Sandviken and Askøy

Abstract

Gasoline retail prices are generally easily observable on an everyday basis, and high price volatility raises public concern. There seems to be widespread opinion that higher gasoline prices are the result of firm collusion aimed at restricting local competition. The purpose of this paper is to test the nature of competition concerning price setting in the Norwegian retail gasoline market. By using data on daily retail gasoline prices collected during spring 2005 in two Bergen areas, Sandviken and Askøy, we attempt to define if the competition climate can be described as competitive, imperfectly competitive or tacitly collusive. An econometric method used is based on the distinction of the effects of local market competition, input prices and common strategies of oil companies on trends in daily retail prices. We can not reject the hypothesis that retail gasoline stations enter tacit agreements, and we find that the observed behavior is inconsistent with the competitive model or with the non-collusive imperfect competition model.