Price Gouging at the Pump? The Lerner Index and the German Fuel Market

Arne Neukirch and Wein Thomas ()
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Wein Thomas: Institute of Economics, Leuphana Universität Lüneburg, Luneburg, Germany

Review of Economics, 2019, vol. 70, issue 2, 157-192

Abstract: Gasoline prices in Germany fluctuate significantly within one day. Price ranges of 15 euro cent per day are not uncommon. Consumers therefore often perceive that market power is exercised in the retail fuel market. Especially high surcharges in the late evening are considered to be price gouging. The German Federal Cartel Authority used these price mark-ups as evidence for oligopoly market power in four metropolitan regions between 2007 and 2010. Data for eight metropolises and 65 medium-sized cities from May 2016 to June 2019 show that the lowest price level in the day is reached in the early evening and then rises sharply. We use the well-known Lerner Index to measure market power in these evening hours. Our descriptive analysis shows that the Lerner Indices of the premium brands Aral, Shell, and Total S.A. rise after 10 p.m., that is, after a large part of the price-aggressive gas stations have closed. The results were about 0.1 for diesel and 0.08 for gasoline. Other companies achieve lower values of 0.05–0.07. Compared to other international studies that deal with the fuel market, we find a similar level of Lerner Indices, but only for few hours and not for the whole day. Multivariate estimations cannot show that a larger market share of the analyzed brand or a lower market share of price-aggressive firms increases the index. Influences of weekdays, different cities or wholesale prices cannot be proven either. Therefore, the gasoline market seems to be competitive, at least in a higher dimension as it is publicly perceived. Hence, pricing behavior in the evening and at night cannot be used as evidence of a serious abuse of market power by petrol stations, which could be relevant for the evaluation of future mergers in the petrol market.

Keywords: gasoline; market power; Lerner Index (search for similar items in EconPapers)
JEL-codes: L13 L43 L91 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/roe-2019-0016

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