[The View] If Government-Set Prices Become a Signal for Collusion

The Government's Price Cap Was Meant to Rein in Fuel Prices
But It Ended Up Sending Refiners a "Signal"
Competition Fades: The Paradox of Transparent Prices

The Fair Trade Commission has begun deliberations on allegations that SK Energy and HD Hyundai Oilbank colluded on gasoline, diesel and kerosene prices. The commission believes the two companies exchanged sales price information for nearly four years, from February 2022 through March 2026, and also colluded on supply prices in March, immediately after the war in the Middle East began. The related sales totaled 44.1 trillion won, and a simple calculation suggests that fines could reach around 4.6 trillion won. The commission says the exchange of price information was prompted by the sharp swings in international oil prices during the war. SK Energy says it will present its case, while HD Hyundai Oilbank has denied any collusion.

What catches an economist's eye is the "exchange of information." It might seem that competition would intensify if companies could see one another's prices clearly, but the opposite may be true. Even if a company secretly cuts prices to lure away customers, its competitors will quickly notice and follow suit, eliminating the incentive to cut prices. Conversely, if one company raises its prices, the others can easily follow. No written agreement or secret meeting is necessary. The fact that companies receive the same information can itself lead to an implicit price agreement.

A figure such as a government-set price ceiling can also serve as a kind of pricing benchmark by giving competitors the same signal. When oil prices surged because of the war in the Middle East in March 2026, the government introduced a cap on petroleum product prices. The ceiling on the price refiners charge gas stations for gasoline has been set at 1,784 won per liter for four consecutive months. The common information created by the supply price cap may have made it easier for South Korea's four refiners - SK Energy, GS Caltex, S-OIL and HD Hyundai Oilbank - to align their prices. Research has already shown that a price ceiling can become a benchmark for implicit price agreements. A paper analyzing U.S. credit card interest rate caps in the 1980s found that card companies not bound by the cap also set their rates in line with it.

Research also suggests that information sharing itself can make implicit price agreements easier, even without a price ceiling. A paper analyzing the gas station market in Melbourne, Australia, found that from 2007 to 2014, major companies in the market subscribed to a private platform that displayed one another's gas station prices every 15 to 30 minutes. Initially, the companies raised prices all at once on a set day each week. But after 2011, they developed a new approach. A leading company would first raise prices at some of its gas stations - usually around 20% - as a signal. The next day, more stations would raise prices, and the other companies would follow. The authors said that, in effect, the companies were communicating through the prices displayed on the platform. During this process, margins - the difference between prices and costs - reportedly rose by about 30%. The Australian Competition and Consumer Commission, Australia's counterpart to the Fair Trade Commission, sued the platform in 2014; the case ended in a settlement in 2015. A similar pattern occurred in Perth, Western Australia. When BP, the market leader, raised prices first at some of its gas stations on Wednesdays, other companies followed on Thursdays. Over three years, the practice of all companies raising prices on Thursdays became entrenched. Margins are estimated to have risen by 19% to 64% during that period.

In the United States, the figures competitors can use for implicit price agreements point in the opposite direction from those in South Korea. South Korea's price cap, which limits the prices refiners charge for supplies, was introduced for the first time after the liberalization of oil prices in 1997. In the United States, some states require retail gasoline prices to be a certain percentage higher than wholesale prices. These laws are commonly called Unfair Sales Acts or Minimum Markup Laws. They were introduced during the Great Depression under the rationale that they would protect small businesses from predatory pricing by larger competitors. In Wisconsin, for example, gasoline must be sold for at least the higher of two amounts: its actual purchase cost plus 6%, or the regional average wholesale price plus 9.18%. Around 25 states have such laws, and gasoline is a leading product covered by them. Milk is subject to similar regulations. The federal government sets a minimum price that milk processors must pay producers, and Pennsylvania also sets minimum wholesale and retail prices for milk. In my study analyzing the Wisconsin case, I found that companies charged higher margins when Minimum Markup Laws were in effect.

South Korea puts a ceiling on prices to keep them from rising too much, while the United States sets a floor to keep them from falling too far. Whether a ceiling or a floor, a government-set figure can easily become a benchmark that companies use to gauge one another's behavior. That leaves us with a question: Is the figure the government puts into the market a shield that protects consumers, or a display board that signals a pricing benchmark to companies? When setting a figure, we should also consider who will read it and how.

Seo Boyoung, Professor at Indiana State University

This content was produced with the assistance of AI translation services.