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

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Published/Copyright: September 17, 2019
Review of Economics
From the journal Review of Economics Volume 70 Issue 2

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
JEL Classification: L13; L43; L91

Acknowledgements

Thank you to participants of the 5th “Verkehrsökonomik und -politik” conference in Berlin in June 2018 for their helpful comments.

Appendix

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Published Online: 2019-09-17
Published in Print: 2019-09-25

© 2019 Oldenbourg Wissenschaftsverlag GmbH, Published by De Gruyter Oldenbourg, Berlin/Boston

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  2. Survey
  3. Monetary Policy and Unnatural Low Interest Rates: Secular Stagnation or Financial Repression?
  4. research-article
  5. Some Preliminary Evidence on China’s New Monetary Policy Tool: The Standing Lending Facility
  6. Price Gouging at the Pump? The Lerner Index and the German Fuel Market
  7. Foreign Direct Investment and International Trade in WAEMU- Panel Causality and Long-term Relationship Analysis
https://doi.org/10.1515/roe-2019-0016
Keywords for this article
gasoline; market power; Lerner Index

Articles in the same Issue

  1. Frontmatter
  2. Survey
  3. Monetary Policy and Unnatural Low Interest Rates: Secular Stagnation or Financial Repression?
  4. research-article
  5. Some Preliminary Evidence on China’s New Monetary Policy Tool: The Standing Lending Facility
  6. Price Gouging at the Pump? The Lerner Index and the German Fuel Market
  7. Foreign Direct Investment and International Trade in WAEMU- Panel Causality and Long-term Relationship Analysis
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