All one giant cartel?

Fuel prices in Germany and many other countries are rising to heights that were hardly imaginable some time ago. This has led to increasing calls from politicians in recent days for an antitrust review of petrol pricing. In this post, we take a look at respective antitrust actions in the past, try to speculate why prices at petrol stations are not too different and why no OPEC member has applied for leniency yet.

Rising petrol prices have called many antitrust regulators to action. Not only the German Bundeskartellamt and the Austrian regulator have confirmed to be closely monitoring the situation, but e.g., the Irish regulator warned petrol retailers against certain public statements and the Italian regulator sent out requests for information to oil companies.

Actually, we should all be driving electric by now

Based on the press coverage about the automotive industry in the last two years alone, one could get the impression that there are no more combustion engines on the roads, so that an increase in petrol prices would not be of any interest. However, this does not correspond with reality. In fact, e-mobility does not yet play a large role in many EU countries. According to data from 2020, there were around 249 million passenger cars in the 27 EU Member States, but only around 0.5 percent of them were purely electric. By contrast, 99.5 percent of the cars in the EU still have a petrol or diesel engine on board, either – for the very largest part – as the sole source of propulsion or in the form of a hybrid drive. So, fuel prices still do matter. But why do people get the feeling that fuel prices are not regulated by competition?

OPEC – a cartel?

To get to the bottom of this question, one should start with the oil production, which necessarily leads to OPEC. OPEC, which is the shortform for Organization of the Petroleum Exporting Countries, is an intergovernmental organization of 13 countries, founded in 1960. The 13 member states account for approximately half of the production of raw oil in the world. According to its statue, the mission of OPEC “is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry”. Doesn’t sound like free competition? One should keep in mind that we are not talking about companies here, but about states. In many jurisdictions, these are already excluded as norm addressees of antitrust law. In addition, the question naturally arises as to which antitrust authority would and could take on OPEC. So, OPEC doesn’t really have to worry about becoming the subject of antitrust proceedings. Consequently, as far as is publicly known, no OPEC member has yet been able to motivate itself to file a leniency application. However, OPEC-countries do compete with other oil exporting countries (at least to a certain extent).

Understood, but what about the downstream markets?

After extraction and transport, raw oil is processed in refineries and distributed via mineral oil wholesalers. There does not seem to be much public information about competition at these market levels, except that the number of market participants seems to be limited. A little more light, at least for the German market, could have been shed by the German Bundeskartellamt’s sector inquiry into the Refineries and Oil Wholesale Sector, which was launched in 2012. However, this investigation was halted presumably because the regulator needed its capacity elsewhere and has not been completed to date. Some might argue it is time to think about a relaunch.

And what about the petrol stations?

It is “the” classic in every antitrust law training: the question about the perceived lack of competition at petrol stations and the always similar prices. Indeed, everyone knows the feeling: The tank is empty, you drive to a petrol station, price seems too high, so you decide to drive to the next petrol station a few blocks away, only to find out that the price is about the same. The obvious question is how the price can be almost exactly the same even though the petrol stations are not within sight of each other. The Bundeskartellamt asked itself this and other questions already more than 10 years ago and examined the petrol station sector in particular in a sector inquiry. Inter alia, the Bundeskartellamt found that the regional petrol station markets were oligopolistic and thus there was a lack of competition on these markets. The investigation showed that there were in particular three factors limiting the competition on the petrol station markets: product homogeneity, market transparency and sanctioning options. Inter alia, the Bundeskartellamt found that petrol station operators send their employees to check on the prices of neighbouring petrol stations (often several times a day). The observed prices are also entered into the electronic system of the respective oil company. However, as our readers will know, this mutual price monitoring without communication is not in itself objectionable under antitrust law.

So, what has been done to increase the competition between the petrol stations?

The issues identified in the report by the Bundeskartellamt are more or less the same in many countries, and authorities tried to increase competition between petrol stations in many ways. Germany for example introduced the Market Transparency Unit for Fuels as a consequence of the aforementioned sector inquiry. Mineral oil companies and petrol stations have to report their current prices to the Market Transparency Unit and the Market Transparency Unit forwards this information to consumer information services, which provide the data to end-customers, for example via apps. Not without irony, this of course also makes it easier for competitors to monitor each other’s prices (no need to physically check other’s prices anymore) – in many other markets, regulators are not necessarily keen on market transparency.

Australia introduced a similar concept, adopting an interactive map (“FuelWatch”) showing the fuel prices around one’s location. Furthermore, petrol stations must notify “FuelWatch” of their following day’s prices by 2pm each day. These prices are ‘locked in’ for 24 hours from 6am. A similar rule is applicable in Austria, where petrol stations are only allowed to increase their prices once a day, at 12.00 pm. Following an intensive investigation in 2018, the government of New Zealand wanted to introduce several measures to increase competition on the retail market for fuels. However, until today apparently no government has found an effective solution to sustainably increase competition.

But lately governments have been successful to drive down fuel prices

Yes, admittedly some governments have driven down the fuel prices. But, stating the obvious, this has nothing to do with increased competition. Hungary, for example, froze petrol and diesel prices at petrol stations to prevent further price increases. Other countries in Europe, inter alia France and Germany, discuss whether they should grant a fuel rebate to their citizens. And yet another number of countries – such as the Netherlands or Poland – are reducing taxes and/or duties on petrol. However, these measures will not help to reduce fuel prices permanently. That brings us back to electric cars…