Gasoline prices: Illegal activity versus normal competition — What is and isn’t price-fixing

Price-fixing is when competitors agree to set prices. When two or more competing gas stations agree to set the price of gas, they are engaging in an illegal activity that can lead to higher prices, fewer product choices, and less innovation. However, before someone can be found guilty of price-fixing, we need to prove they agreed to set prices. This means that suspicion is not enough: we need hard evidence.

To prove price-fixing, we need clear evidence that competitors have agreed with one another to set prices. If an investigation finds evidence of illegal activity, we may refer the case to the Public Prosecution Service of Canada for criminal prosecution.

Price matching by competitors

Gas prices moving in unison can be a result of illegal conduct. However, there may be another explanation. For instance, gas stations typically post their prices on large outdoor signs. Since consumers are sensitive to price, a given station risks losing business if it prices its gas higher than nearby competitors. As a result, competing stations often charge similar or identical prices. Competing gas stations may legally charge the same price as long as they have not agreed to do so.

When companies follow their competitors’ prices closely and react according to what their competitors do, one could argue they are competing less aggressively. This is called “price coordination”. This occurs when something is understood or implied between competitors without being negotiated or expressly communicated. Coordinated pricing is not the same as a price-fixing agreement; however, we may be able to prove that the parties agreed to act together if there is evidence of coordination combined with other activities, such as sharing competitively sensitive information or helping each other keep track of one another’s prices.

Holiday weekend pricing

Wholesale gasoline prices tend to rise in the late spring and early summer. This is because refineries shut down around those times for short periods to maintain or upgrade their operations to prepare for high summer demand. Retailers will often pass along those price increases to customers, and these increases may (but not always) take effect before a holiday weekend. Conversely, when gasoline demand drops in the fall, wholesale and retail prices generally drop as well.

Gasoline versus diesel fuel and home heating oil

Unlike the demand for gasoline, the demand for home heating oil is seasonal. As well, wholesalers usually sell home heating oil under contract for an entire season at a specific price.

On the other hand, demand for diesel fuel, which is used mainly by truckers and farmers, tends to stay fairly consistent. As with purchasers of home heating oil, trucking fleets usually negotiate a diesel contract with one supplier. As a result, diesel prices tend to be more stable than gasoline prices.