Overconcentration in the filling station sector is raising the price of gasoline to the end consumer by NIS 0.10 per liter, according to a draft report by the Antitrust Authority published yesterday. The Antitrust Authority study dealt with geographic overconcentration and the connection between the characteristics of filling stations, their competitive surroundings, and the prices they charge.
The report shows that the major fuel companies - Paz Oil Company Ltd. (TASE:PZOL), Sonol Israel Ltd,, Dor Alon Energy in Israel (1988) Ltd. (TASE: DRAL), and Delek Israel - have an 84% aggregate market share, and no significant competition between them exists. The large degree of concentration is reflected in the NIS 0.0614 per liter average discount granted by the major companies on the price of gasoline with complete service. The small companies examined had to make a greater effort, and offered a larger discount of NIS 0.1778 per liter.
"The large proportion of filling stations owned by the four largest companies gives rise to concern about coordinated behavior by these companies," the report states. "The existence of a maximum supervised price, which provides a reference price for a coordinated equilibrium, increases this concern. There are indications of some uniformity in prices between the filling stations of the large companies, which are very miserly about giving discounts." According to the study, the existence of a small fuel company lowers the prices at the other filling stations in the same geographic area. Entry and expansion barriers, however, make it difficult for small fuel companies to enter the market. These entry barriers are due to lack of space for building new filling stations, burdensome regulation, and long-term agreements with the operators and owners of existing filling stations. In view of the findings, the Antitrust Authority is recommending three policy measures for increasing competition in the sector.
"It is recommended to create a legal regime according to which in regions classified as having concentration of a large fuel company, coupled with the absence of a small fuel company from an area of competition, a large company cannot contract an agreement, including a new agreement, renewal of an agreement, or extension of an agreement, with a filling station without first receiving specific permission from the Antitrust Authority's supervisory mechanism," the report states. Another recommendation concerns "areas of competition in which there is only one filling station… the state must make a special effort to find land for the construction of new filling stations, and to allocate them to small fuel companies, while paying special attention to the importance of continuous deployment of filling stations around Israel." This recommendation means the creation of competition for the 184 filling stations of the large companies.
A third recommendation is to restrict the duration of agreements between filling station owners and fuel suppliers.
Published by Globes [online], Israel Business News - www.globes-online.com - on July 10, 2017
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