Evidence of inter-brand coordination

Table 9: Summary statistics of hourly retail prices by brand. Sample period is 1 January 2017 to 28 February 2018.

36 Station 4 stands out with almost twice as high expected duration of the low state compared to the high state.

This is as anticipated considering the high degree of competition in the geographical area for which the station is located as previously mentioned.

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Up until now, I have shown how Circle K signals intra-brand price restoration by implementing adjustments to its recommended price. One question remains: do changes in Circle K’s recommended price initiate inter-brand price restoration? The user-reported data is well suited for this purpose, as it covers all major brands as well as minor brands located throughout the country, from small rural areas to larger cities. Observations are from 17 out of in total 18 counties, which covers 122 out of 426 municipalities.³⁷ Summary statistics are given in Table 9.

First, I examine whether price distributions differ in the pre-and the post-period across different brands. From Figure 12, in general there seems to be a change to more centered prices, as compared to the pre-period with more dispersed prices in both directions. Applying the Kolmogorov-Smirnov test of equality of distributions provides p-values between approximately 0.00 and 0.03 for all brands, implying that price behavior is significantly different for all brands before and after 29 November 2017. This is consistent with what I found from the station panel data.

37 The one not covered is Finnmark, the northernmost county.

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Figure 12: Histogram (top panel) and kernel density distribution (bottom panel) of retail prices for the pre- and post-period by brand. Sample period is 1 January 2017 to 28 February 2018.

Since this dataset is unbalanced, when examining whether the old predictable cycle is present in the data, only studying 3 p.m. prices will utilize less information than the data contain, in contrast to the balanced station panel where all 3 p.m. observations for the Circle K stations are available. To overcome this, I calculate the mean price for the a.m. hours (12 a.m. to 11 a.m.) and p.m. hours (12 p.m. to 11 p.m.) during a day for each brand, treating each day as consisting of two prices, one a.m. and one p.m. price. In this way, by looking at the daily p.m. prices, I am able to trace out if there has been a change in the price pattern for the different brands before and after Circle K’s policy change. In Figure 13, where the mean p.m. prices for different days of the week are presented separately for the pre-period and the post-period, the old pattern with restorations on Mondays and Thursdays after noon is visible for all brands. Further, the breach in the old regime is also clear, as there seems to be no pattern after 29 November 2017.

Prices look more stable at a higher level after the price policy change, with less fluctuations upward as well as downward. This reflects the fact that restoration can occur on whichever day of the week. Hence, when averaging the p.m. prices for each day of the week, since each day can in essence both be a “low price” day as well as a restoration day, large peaks are smoothed away. All these observations point in the direction of that Circle K has managed to change how restoration days are determined not only for its own stations, but also for the other companies’

stations. Seemingly, Circle K has taken the role as a price leader and been accepted as a price leader by the other companies: prior announcements of the recommended price by the price leader initiates coordination of inter-brand retail prices.

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Figure 13: Mean p.m. retail prices per day-of-the-week before and after the price policy changes across brands. On the x-axis, 0= Sunday,.., 6= Saturday. Sample period is 1 January 2017 to 28 February 2018.

Having established a change in price behavior for other brands than those belonging to Circle K from 29 November 2017 as well, I investigate whether there is any relationship between Circle K’s recommended price and price restoration for different companies. I carry out the same exercise as in Figure 7 by looking at retail prices together with days for which Circle K changes its recommended price, except that I instead look at the mean daily p.m. prices for each brand over time for reasons addressed above. Figure 14 shows the same behavior for brands belonging to other companies. In particular, the major brands Shell, Esso and Uno-X seem to implement price restorations on days when Circle K announces an adjustment in their recommended price.

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Figure 14: Mean p.m. retail prices by brand over time after the policy change. Vertical dashed lines mark dates with a change in the recommended price of Circle K. Sample period is 29 November 2017 to 28 February 2018.

Is price restoration as systematic as it is found to be for Circle K’s stations in terms of when price restores during the day? Although one should be careful looking at single observations from user-reported data, they can still give an indication of how prices behave. To keep the most accurate stations, I exclude all stations with less than hundred observations in the post-period, leaving thirteen stations left. These stations cover all the four major companies from five different counties. Table 10 gives an overview of brand and ownership. Within a restoration day, I look at stations with price reports before in addition to after the 9 a.m. to 11 a.m. window within the same day. Then, I am able to tell whether the station’s price has restored within the day, depending on when the price report after the 9 a.m. to 11 a.m. window is made. In many cases, I observe a price report before as well as a price report within the 9 a.m. to 11 a.m.

window. As such, for those stations on those particular days, I can study the timing of a price restoration more carefully. For other cases, I only observe a price before this “restoration window” on a restoration day and another price report the day after, or a price report the day before a restoration day and another price report after the restoration window on the restoration day. Hence, while I do not observe the exact time of restoration if any, these observations still indicate whether price restoration occurred within those two times.

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I find that for all the different pairs of observations as explained above, the behavior of the Esso, Shell/St1 and Uno-X stations are very similar to those of Circle K stations. I see numerous observations showing that on days where Circle K adjusts its recommended price, retail price is relatively low in the early morning, while has restored within the 9 a.m. to 11 a.m. window.

In general, I do not observe that prices restore on days where Circle K does not adjust its recommended price. This again suggests that the new pattern is adapted by all the four major companies. In addition, since the time during the day when price restores seems quite systematic, it suggests that the cause of price restorations by other companies is because they follow and adapt Circle K’s announcement of a nationwide restoration of prices for their stations, rather than that single stations follow Circle K stations’ restorations in the local market.³⁸

Table 10: Overview of brand and ownership for stations with hundred or more observations from 29 November 2017.

After Circle K’s price policy change, Uno-X adjusts its recommended price whenever Circle K does so.³⁹ In fact, based on personal observations from March to July 2018, 100% of Circle K’s adjustments of recommended prices are followed up by changes in the recommended prices of Uno-X within 90 minutes later. Further, in this period, their recommended price is always set 0.02 NOK above Circle K’s. Since the recommended prices are available online, observations made by myself suggest that while Circle K posts adjusted recommended prices between 7:30 a.m. and 8 a.m. on the restoration day, Uno-X adjusts their recommended prices accordingly between 8:30 and 9:30 a.m. the same day. This implies that at least Uno-X follows Circle K’s decisions on when to implement restorations for its stations. In fact, Uno-X’s use of the recommended price seems to work as a device to signal back to the leader that it will follow on the retail prices. Whereas Esso does not post recommended prices online while Shell/St1 does so only for the corporate market, findings from the user-reported data further suggest that Esso and St1 now behave according to the new common view.

38Information available online suggests that there is a mix of dealer-owned or franchise-owned and company-owned stations in this sample, which suggests that the price policy applies regardless of contract form.

39 The recommended price is posted on YX’s webpage, Uno-X’s serviced brand. Unfortunately, I am not able to examine whether this is the case also before the policy change.

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