1. Oligopolistic theory predicts collusion and price stability, but assumes that there are only a few competitors in the marketplace and that information is freely shared among these competitors. In the case of gasoline retailers in the United Kingdom, these conditions are not met.
It is true that there are a only a few oil companies (called the seven sisters by some) who control the flow of gasoline into and within the United Kingdom. The largest of these, Shell and Exxon (through its Esso subsidiary), dominate the market. When two smaller companies, British Petroleum (BP) and Mobile joined forces in 1996, it was to bolster their own competitive edge in the marketplace. Prior to the merger, these two companies did not have the financial clout to participate in price fixing.
However, price fixing in the strictest terms (as in collusion among companies) is prohibited under British law (just as it is in the United States). Typically, companies will match the prices of their competitors in order to maintain market share, particularly when the product in question is viewed strictly as a commodity where the purchase decision is based nearly exclusively on price, which is how most consumers view gasoline.
Despite the activities of the "seven sisters," there are also other participants in the retail market, including independent retailers (small business owners) and large supermarket chains who can subsidize their gasoline sales with sales of other products. The independent retailers have no way to subsidize their gasoline sales except through whatever repairs they are able to conduct (many also serve as garages); the result is that decreased prices at the pump hurt them and force them out of business. This results in fewer competitors in the long-run; this, in turn, enhances the likelihood that a true oligopoly will result in the future where there is an unspoken agreement among retailers to maintain higher prices, and thus h...