Price Rigidity in Fuel Market: A Solution with a Different Geographic Market Approach

Abstract

ACTECON Papers 05 focuses on fuel market and structural problems in such market as well as the effects of recent tax and price increases in its 5th issue. It is a relatively difficult question to answer for people living in Turkey: Why are we paying for the most expensive fuel in the world and why the decrease rate of the prices is not same with the increase rate? These questions can have numerous and various answers however none of them were economically justified over decades. Accordingly, this situation leads to market imperfections in our country as the tax rates obtained from the fuel approaches to 65%.We still remember that the increases and decreases in international fuel prices have not been reflected on the pump prices before 2005 in which fuel prices were decided by the government. Nowadays, we see that the government is troubled with 'fuel prices not decreasing as at the same rate of it is increasing' problem and Turkish Competition Authority and Energy Market Regulatory Authority are expected to come up with a solution to the 'lack of competition/price rigidity' problem. In this academic article, Sahin ARDIYOK, suggests and analyses 'narrower geographic market' approach in fuel sector in the perspective of competition law and economics within the aim of solving the 'price rigidity' problem. In this context, we will present market failures in fuel market and define Turkish Competition Authority’s and Energy Market Regulatory Authority’s role regarding those market failures and deal with the opportunities missed during the privatization process of TUPRAS. Subsequently, we discuss narrower geographic market model recently implemented by German Competition Authority in various merger and acquisitions transactions and whether applying the same approach would provide less rigidity in prices of oil in Turkey.