Competition and consumer prices in the fuel market: insights from a small EU country

Abstract

Purpose This study aims to analyse the effect of competition on retail fuel prices in a small European Union (EU) country with high market concentration. Design/methodology/approach The researchers use a panel data set to estimate a fuel price equation that includes supply and demand factors as well as time-fixed effects. Findings The study finds that more competitors in the local market decrease prices, whereas the high market share of oligopoly brands does not condition this effect. Additionally, independent brands set lower prices than wholesalers, and gas stations located near the borders of almost all neighbouring countries are associated with higher prices. Research limitations/implications The study suggests that Slovenia’s retail fuel market maintains competitive pricing despite high oligopolistic shares because of historical regulatory influences that shaped firm behaviour and pricing strategies, along with geographical and economic factors such as Slovenia’s role as a transit country. External competitive pressures from neighbouring countries and high levels of traffic, combined with the remnants of regulatory structures, help prevent market abuses and keep fuel prices lower than in other EU countries. Practical implications It also indicates that policy should encourage fiercer competition in the local market by increasing the density of gas stations, especially from independent brands. Originality/value These findings may be associated with specific country characteristics. This paper introduces unique findings that shed light on the impact of a small market on competition, with a particular focus on highlighting the effect of oligopolistic brands.