Competition? If the price didn’t drop that would be an indication of price fixing.
Not necessarily.
They don’t exist in a bubble. Sainsburys/BP/Tesco know how much Shell/Asda/Esso are charging for fuel.
(The numbers below are purely to show the point and don’t represent any real profit/margin figures)
Let’s say the market has ‘settled’ when the ‘cost price’ of fuel (inc tax) is £1.20/l and we’re all selling for £1.40/l and making 20p profit on the fuel and tax to cover our costs and provide a tiny bit of profit.
Then the price of crude falls, which has a knock on effect of lowering the ‘cost’ to the petrol stations to £1/l.
I *could* lower my price, immediately, to £1.20, so I’ve still got the 20p to cover my costs. But why not wait for a bit? If I manage an extra day at £1.40 then that’s an extra day of 40p/l profit rather than 20p/l.
“But what about market share?”
Aha, so I want to steal some market share, take customers from my competitors and so get more money that way. The profit per litre might be the same but if I’m selling twice as many litres because everyone is coming to me rather than BP down the road….
Except, as soon as I lower my prices, all of my competitors do too. 30 minutes ago we were all making 40p per litre profit. But I got greedy, tried to steal some customers by lowering my prices, everyone else (sensibly) responded by lowering their prices too, so now I’ve got the same market share as before my genius market share idea, but it’s making a smaller profit.