Regulating Gasoline Retail Markets: The Case of Germany

Abstract

Abstract In 2011, price peaks in retail gasoline prices caused public outrage and attracted the attention of German regulatory agencies. After having examined the market, competition authorities concluded that tacit collusion existed but could not easily be prosecuted under given competition law. In several other countries, various types of regulatory schemes are implemented to tackle tacit collusive behavior, e.g., there are price ceilings established in Luxembourg or per day limits of price increases given in Austria. However, research has found that none of them has led to satisfactory results. Hence, the following paper proposes a different regulatory approach, i.e., the implementation of corrective taxes. Results show that a specially tailored tax on price successfully manages to render collusion an unprofitable business by collecting marginal profits and that the inherent vice of the gasoline retail market, i.e., the transparency that enables tacit—and therefore non-prosecutable—collusion, could be turned into a regulatory virtue as it becomes a powerful means to help successfully tackle imperfect competition and to bring about a more efficient market outcome.