Nearby gas stations from the same brand cooperate with each other, which raises the price of diesel fuel, a study by the Bank of Israel about Israeli gas stations and their effect on prices finds. The study, published today, uses Waze figures on the duration of the journey between gas stations. It calculates the characteristics of the gas stations' areas of control.
The study found that the price of diesel falls almost 2.5% when the large brand is split into independent stations. According to the Bank of Israel, this influence is a strong one, indicating that bolstering competition will have a significant effect on profit margins because in this specific market, the price reflects mainly the cost of buying the fuel and taxes.
The retail fuel market in Israel in 2017 included 1,200 gas stations, most of which belong to four brands and a few to several small competitors whose deployment is uneven. Sales of diesel fuel and gasoline in Israel were estimated at NIS 33 billion in 2014.
The Bank of Israel concludes, "A policy to encourage opening stations that do not belong to the four large brands, alongside tightening of the restrictions on opening stations that do belong to the large brands, particularly in proximity to other stations of the same brand, could lower the consumer price of diesel fuel."
In order to measure the distance between gas stations, the Bank of Israel researchers used data from Waze taking road congestion into account for the first time. "This measurement uses travel duration as an adjusted estimate of average actual traffic congestion and is therefore more precise than an estimate based on permitted speed. For this reason, it provides a good representation of gas station substitutability from the consumers’ standpoint," the study states.
The conclusions reached by the Bank of Israel study are very reminiscent of a study on diesel conducted six months ago by the Antitrust Authority. The Antitrust Authority found that the price gaps in the diesel market between the various gas stations were greater than in the gasoline market, while the small gas stations offered substantially lower prices than the four major brands.
Unlike gasoline, the price of diesel in Israel is not controlled. The Antitrust Authority found that in contrast to the gasoline sector, some degree of competition did exist between the four largest fuel companies (Paz Oil Company Ltd. (TASE:PZOL), Delek Group Ltd. (TASE: DLEKG), Sonol, and Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL), but this competition had less force than the competition between the four companies and small companies. The Antitrust Authority found that gas stations belonging to small companies offered significantly lower prices on the average than the four major companies, while the gaps in prices were greater than the gaps for gasoline.
Published by Globes [online], Israel business news - www.globes-online.com - on July 18, 2018
© Copyright of Globes Publisher Itonut (1983) Ltd. 2018