Petrol price war breaks out

Here is an example of the kind of periodic price war that is characteristic of an oligopolistic market. The Guardian reports that the supermarket chain Asda has cut the cost of unleaded petrol and diesel to 99.9p a litre at all its 176 fuel stations. .Sainsbury’s, Morrisons and Tesco are the other main players in the market, and the Automobile Association believes that they will follow Asda’s lead.

Is Asda really the price leader in the UK petrol retail market - Morrisons has already followed suit by dropping prices to what is considered to be the psychologically important price of 99.9p per litre or less. Most supermarkets engage in price-matching in local areas so if a rival’s prices are going down, then they will go down as well - to some economists this is a form of hidden price fixing.

Or is this move part of a wider phase of price competition across the supermarket chains, using ultra-low profit margins on fuel to entice customers into their stores? The report says that the number of petrol stations in the UK has fallen to about 9,000, from a peak of 30,000 three decades ago and that smaller independent petrol stations would struggle to match the firepower of the big supermarkets. A 2p drop in the price of petrol saves the average UK family £4.34.

The average charge per litre for unleaded has been 103.8p, ranging between 99.9p and 115.9p.The average for diesel was 105.3p, ranging between 99.9p and 117.0p.