Market Structure and Game Theory

Market structure of fuel refilling stations in my hometown (Texas)

In my home area, there are only a few petrol stations. Many of the customers have to travel for long distances before accessing a petrol station. The low number of fuel filling stations has been as a result of the high cost of establishing such stations including regulatory costs. As a result, the few stations that operate in the area collaborate in the setting of oil prices. To a big extent, they operate as an oligopoly in the area as they have full control of price levels. Under oligopoly market structure, only a few numbers of firms have control of the product including its pricing (High, 2001). As a result, they tend to charge a higher price as compared to the price that could have been charged in the industry if perfect competition prevailed. Customers who are not willing to refill their cars within my home area have to travel for long distances and hence many of them prefer paying the slightly higher price in the home area instead of travelling to such long distance. 

Industry status

The oil industry is faced with a decline in the price of oil per barrel in the United State of America. Filling stations operate in this industry, dealing with the end consumers of oil products. Many filling stations in the industry take longer to react to changes in oil prices as compared to the wholesale suppliers. On the demand side, reference pricing significantly affects demand. When the price of oil falls, the reference price remains high. On the supply side, some of the firms have low pressure as they can easily access the products. When there are no nearby petrol stations that are pushing the prices down, players in the retail sector tend to take longer before reacting to such changes. This has led to the development of monopolistic market structure where many of the filling stations are trying to differentiate their products from those of other competing firms based on the accompanying services provided to the customers besides the basic service of refilling their gas tanks (Datta, 2017). 

In the United States of America, the oil filling centers are characterized with prepayment for oil and other services that are provided at these centers. Commonly, payments are made to the pump attendants. The modern gas stations have established pay at pump approach where people can make such payments through either cash or their cards. Fuel cards are being highly utilized in this industry. The filling stations in the US are providing one of the following three approaches to service delivery among customers to their customers. Such services include full service, self-service or minimum service category. Under the full-service category, the attendant, also referred to as gas jockey is the one who operates the pump. He or she often wipe the windshield and confirm fuel levels in customer vehicles. Such attendant then collects the payments and refills the vehicles. Under the minimum service approach, the customer only operates the pump, refilling gas tanks. The law requires that customers should not be the ones to operate the pump when refilling.

Another kind of service approach is self-service where customers serve themselves. In such scenarios, signs are provided that indicates to customers the refueling procedures. In the United States of America, there are multiple companies that have established gas filling stations. Many of these companies differentiate their products by providing extra services besides oil at the stations. As a result, customers end up having a specific prevalence on the filling station that they seek for vehicle refill. Nevertheless, in the oil refilling market, proximity has been the key concern among consumers. Many consumers always look for the nearest filling station especially when they are about to run out of gas. Equally, the location of such stations near the roads increases chances of customers purchasing fuel from such stations. Other customers may also seek refueling in stations with extra services such as vehicle servicing. Access to traffic areas is a key success factor in this industry. The industry is worth US$98 billion (IBISWolrd, 2018).

Market structure of fuel refilling stations in the US

The petrol/gas filling stations in the United States of America operates in a monopolistic competition where there are many sellers of slightly differentiated products. Such products differ whether in reality or by perception. Such products are differentiated in terms of convenience of access, other accompanying services, location or brand. Geographical differentiation is equally employed in the gas filling industry in the US. People may tend to refuel their cars at the nearest petrol station notwithstanding the brand. At the same time, advertising may be utilized in the promotion of the brand. A brand may be priced slightly higher in an effort to develop a perception among consumers that it is of high quality than that of other competing firms. Some of the key characteristics of the monopolistic market structure are that there are a high number of sellers and buyers in such markets. There is an equally free entry as well as exit in these markets. The demand is more elastic. By entering the gas filling market in the US, it is evident that there will be no monopoly, something that would end up keeping the new venture out of the market. The market prices will also be largely driven by the forces of demand and supply. There are multiple filling stations that will be competing with the new firm in the US. Some of these filling stations include American gas, Amoco, BP, CENEX and Chevron among others. Exxon filling outlets are also part of the competing filling stations in the United States of America (IBIS World, 2018).

References

Datta, D. (2017). Managerial economics. New York: McGraw Hills.

High, J. C. (2001). Competition. Cheltenham, UK: Edward Elgar Pub. 

IBIS World (2018). Gas stations. Retrieved from https://www.ibisworld.com/industry-trends/market-research-reports/retail-trade/gasoline-stations/gas-stations.html