Why Fuel Surcharges may be Anticompetitive
With the increase in the price of oil, fuel surcharges have become a common and widely used practice in the transportation industry. Firms ask consumers to pay these surcharges in addition to the base price. Assuming that (i) fuel prices randomly fluctuate, (ii) fuel prices affect firms' costs differently, and (iii) firms pass on changes in their fuel costs to consumers, we show that the practice of fuel surcharging increases firms' profits, and constitutes an anticompetitive behaviour. © 2009 LSE and the University of Bath
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