Context 1: The UK retail fuel market
The UK retail fuel market is highly concentrated, dominated by four major supermarket chains (Tesco, Asda, Sainsbury’s and Morrisons) alongside large oil companies such as BP and Shell. Together, these firms control over 70% of the petrol and diesel market.
The cost of filling a family car has soared, contributing significantly to rising living costs in recent years. During periods of global market volatility, pump prices rose faster than wholesale crude prices, but fell much slower when wholesale oil prices slumped—a phenomenon critics call 'rockets and feathers' pricing. Drivers feel trapped, particularly in rural areas where alternative transport options are sparse.
The Competition and Markets Authority (CMA) has monitored price transparency. Although the CMA observed high retail margins, it noted that 'the competition regulator found no direct evidence of formal cartel agreements among the major fuel retailers' to date. Instead, parallel pricing may stem from tacit collusion, where firms closely monitor and match each other's price movements via digital boards.
Extract B states that 'the competition regulator found no direct evidence of formal cartel agreements among the major fuel retailers.'
With the help of a diagram, explain how collusion between fuel retailers could affect the retail prices paid by consumers.
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.