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Demand Cycles, Traffic Flows and the Regulation of Fuel Markets

Project leader:
Simon Martin, PhD

Funding:
DFG

Duration:
2 years

Retail fuel prices have a direct impact on many households, companies' distribution networks and therefore on the economy as a whole. Competition authorities in various countries have raised concerns about the functioning of this industry over the last decade. In view of the high and rising oil prices, possible political interventions are frequently discussed, both by the public, politicians and academics. In addition, the fuel retail industry will undergo significant structural change in the near future due to a general change in climate policy, the geopolitical situation and the increasing importance of electric vehicles. 

One of the most striking features of the retail fuel markets is the high volatility of prices, which often move in cycles. The existence of this phenomenon has already been extensively studied and documented. However, the reasons for these cycles have not yet been sufficiently researched.

In Germany, petrol stations change prices five to seven times on an average working day. These price adjustments seem to follow predictable daily price patterns. At night, when many petrol stations are closed, prices are relatively stable, but fall in the morning hours and rise again in the evening. In 2015 and 2016, there were also additional smaller cycles around midday.

By evaluating high-frequency traffic flow data collected by the German Federal Highway Research Institute (BASt, Bundesanstalt für Straßenwesen), this project aims to better explain the causes of price cycles at petrol stations. The answer to the question of causes is a crucial part of any political discussion on retail fuel markets, e.g. on taxation, regulation or market transparency.

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