In the UK, roadside fuel retailing is dominated by a small number of supermarkets (such as Asda, Tesco, Morrisons, and Sainsbury's) alongside oil majors like BP, Shell, and Esso. These firms operate in a highly concentrated oligopolistic market. Because consumers are highly price-sensitive when buying petrol and diesel, forecourts utilize digital price-boards visible from the roadside, making price transparency absolute.
Industry reports highlight that fuel retailers monitor rivals’ prices constantly and set prices interdependently; any unilateral price change is swiftly met by competitors. While this interdependence often keeps local prices highly stable (and sometimes rigidly high), it occasionally triggers aggressive price wars when one major player attempts to capture local market share. To escape this mutually destructive price competition, many brands increasingly rely on non-price competition, offering loyalty card points, high-quality café facilities, and premium fuel alternatives.
Extract B states that, 'Fuel retailers monitor rivals’ prices constantly and set prices interdependently; any unilateral move is swiftly met by competitors.'
With the help of a diagram, analyse the impact on motorists (consumers of fuel) of interdependence between fuel retailers.
136 exam-style questions on AQA A Level Economics 1.5 Perfect competition, imperfectly competitive markets and monopoly, covering 1.5.1 Market structures, 1.5.2 The objectives of firms, 1.5.3 Perfect competition, 1.5.4 Monopolistic competition (A-level only), 1.5.5 Oligopoly (A-level only), 1.5.6 Monopoly and monopoly power, 1.5.7 Price discrimination (A-level only), 1.5.8 The dynamics of competition and competitive market processes, 1.5.9 Contestable and non-contestable markets (A-level only), 1.5.10 Market structure, static efficiency, dynamic efficiency and resource allocation (A-level only), and 1.5.11 Consumer and producer surplus (A-level only). Each one has a worked solution and a mark scheme showing where the marks go.