The Hellenic Competition Commission ("HCC") conducts the first Mapping study on the conditions of competition in the Petroleum Industry. Mapping is a new tool that has been added to the responsibilities of the HCC by the provisions of Law 4886/2022 (article 14(2) subpar. s) and allows it to study the competitive conditions in any market or sector of the economy - where required - for the effective exercise of its powers.

Petroleum industry mapping, launched by an HCC decision on 22.3.2022, is conducted by the Directorate General for Competition (DGC) in collaboration with the team of the HCC’s Chief Technology Officer (data scientists) and academic experts. At the same time, since September 2021, the DGC has been conducting an ex-officio investigation in the petroleum sector for possible anti-competitive practices (see below).

It is recalled that the HCC is one of the first Competition Authorities in the European Union to launch an investigation in the petroleum market, with only the Competition Authorities of Austria and Germany to have similarly initiated such investigations into this market.

Mapping Scope

The petroleum industry includes a very wide range of products. The HCC’s Mapping selectively focuses on 95 octane unleaded petrol, diesel and heating oil, i.e., three prime necessities with low price-inelastic demand.

The study examines price pass-through in the oil production and distribution chain in the Greek market. Specifically, this mapping examines the phenomenon of asymmetric adjustment of fuel prices in relation to costs (also referred to as the "Rockets & Feathers"- R&F^[1] phenomenon, especially with regard to the existence of asymmetry in price adjustment between the different stages of the petroleum industry (refining, wholesale, retail). 

The study explores the following questions:

1. Do retail prices adjust more slowly (feathers) to wholesale price decreases and faster (rockets) to price increases?

2. Is there any asymmetry in price adjustment between the different stages of petroleum industry (refining, wholesale, retail)? Which stage does the phenomenon of asymmetry originate from?

3. Is asymmetry (if any) an effect of distortions and lack of competition in the markets under consideration? What causes of asymmetry are identified?

4. What is the degree of price pass-through in the production chain?

5. What are the effects of the phenomenon on consumer surplus?

6. What measures might help to deal with this phenomenon?

The sample studied consists of daily fuel prices per stage (refinery, wholesale and retail prices) and covers, at this stage, the period from October 2019 to April 2022.

The econometric analysis is based on the use of an appropriate econometric model, namely the Asymmetric Spatial Error Correction Model^[2] and examines price pass-through separately for each stage of the value chain (from refining to wholesale and from wholesale to retail). Analysis is conducted with regard to different time periods in order to take account of the impact of the Covid-19 pandemic and the war in Ukraine.

The Rockets & Feathers phenomenon and the findings so far

Asymmetry in price adjustments occurs when prices in the downstream market adjust differently to price changes in upstream markets. An example of this phenomenon is when the price of downstream products immediately increases when input price increases (“rockets”) but falls slowly with input price decrease (“feathers”). The phenomenon is very common^[3] in the fuel market in certain countries and may be due to a number of different drivers^[4], such as: 

- The highest retail price as a focal point for gas stations.

- Possible delays in integrating low prices into fuel supply, mainly due to limited stocks.

- The existence of asymmetry in consumer information about price developments and fluctuations.

- Search costs on the consumer side: price increases due to a cost increase will lead consumers to intensify their search for a lower price reducing profit margins and price dispersion. On the other hand, when costs and prices decrease, consumers tend to reduce search leading to higher profit margins and greater price dispersion^[5].

- Depending on storage capacity, there is an incentive for higher prices when international prices are low. Conversely, in times of high international prices retail prices are automatically adjusted upwards, as storage is not profitable.

- Areas with locally strong retailers are more likely to have slow price drops.

- The possible existence of cartels between retailers.

- The tacit collusion between retailers or undertakings operating at another stage of the value chain.

In the context of the mapping study, the existence of one or more of the above reasons for the presence of an asymmetric adjustment of fuel prices will be examined. Based on the relevant literature, the oligopolistic nature of each local relevant market activates the emergence of price asymmetry. This finding raises questions about the existence of oligopolistic/possible anti-competitive behaviors by undertakings operating in these markets.

Early findings

From the very early findings of the study so far, there are significant signs of existence of the asymmetric price adjustment phenomenon in the Greek market at the retail stage (gas stations), as a preliminary analysis of the weekly fuel prices published by the European Commission (Oil Bulletin)^[6] confirms the existence of an asymmetry in the pass-through of fuel prices in Greece, which leads to a loss of part of the consumer's surplus, as the consumer pays more than the amount he would actually pay in the absence of this phenomenon.

Process followed and final results

In April 2022, the DGC sent questionnaires to all undertakings active in the oil industry at all stages of the value chain nationwide, namely the two refining companies and the nine companies with nationwide activity in the oil wholesale. The DGC also drew on retail price data for the products in question from more than 5,000 gas stations nationwide from the data kept by the Centre for Renewable Energy Sources and Saving (CRES).

The investigation is expected to be completed by the end of July 2022. An in-depth understanding of market operation will enable the HCC to make proposals to the State to further strengthen competition and remove regulatory barriers, contributing in a scientifically thorough manner to the public discussion on policy making aimed at boosting free competition in the petroleum sector. The HCC may also launch a regulatory intervention into this sector under article 11 N 3959/2011, where it finds that there are no conditions of effective competition and deems that the implementation of articles 1, 2 and 5 to 10 is insufficient to create conditions of effective competition.

Continuous monitoring of the petroleum industry 

This Mapping is the most recent in a series of actions taken by the Hellenic Competition Commission in the petroleum industry. In September 2021, the DGC launched an ex officio investigation into 15 refining, wholesale and retail gasoline and oil companies. Ex officio investigations were carried out between 2004-2015 and resulted in the imposition of fines of over €9 million and adoption of commitments^[7]. As early as 2012^[8], the HCC, using its advisory powers, had proposed to the State a series of measures aimed at removing regulatory barriers and strengthening competition, however some key proposals of the HCC have not yet been adopted (or have been partially adopted).

^[1] Retail prices adjust more slowly (feathers) to wholesale price decreases and faster (rockets) to price increases.

^[2] See Eleftheriou, K., Nijkamp, P. & Polemis, M. (2019) Asymmetric price adjustments in US gasoline markets: Impacts of spatial dependence on the ‘rockets and feathers’ hypothesis. Regional Studies 53(5), 667-680.

^[3] See Verlinda, J. A. (2008). Do rockets rise faster and feathers fall slower in an atmosphere of local market power? Evidence from the retail gasoline market. Journal of Industrial Economics, 56(3), 581–612, Asane-Danemmann (2020).

^[4] See, for example, Borenstein, S., Cameron, C. A., & Gilbert, R. (1997). Do gasoline prices respond asymmetrically to crude oil price changes? Quarterly Journal of Economics, 112(1), 305–339, Tappata, M. (2009). Rockets and feathers: Understanding asymmetric pricing. RAND Journal of Economics, 40(4), 673–687), Antoniou et al (2017), Chaoyi Chen, Michael Polemis & Thanasis Stengos (2020) Re-examining the asymmetric gasoline pricing mechanism in EU: a note on a panel threshold analysis, Applied Economics Letters, 27:10, 778-783, Deltas, G. & Polemis, M., (2020). Estimating retail gasoline price dynamics: The effects of sample characteristics and research design. Energy Economics (92).

^[5] Lewis, M.S. (2011), Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market. Journal of Economics & Management Strategy, 20: 409-449.

^[6] See https://energy.ec.europa.eu/data-and-analysis/weekly-oil-bulletin_en

^[7] See HCC Decisions Nos 263/2004, 327/2007, 421/2008 (annulled) and 602/2015.

^[8] See HCC Opinion No 29/2012.