Do Retailers Price Gouge During Supply Shocks?

Large supply shocks often raise concerns that retailers exploit rising costs to increase markups. We study the oil-price shock following Russia's invasion of Ukraine using wholesale fuel prices, near-universe daily retail prices across Great Britain, and more than 200 million precisely geolocated searches from a major fuel-price comparison platform. Despite fuel prices rising by 37% over the preceding 21 months with essentially no change in search, the abrupt post invasion increase triggered a more than twentyfold surge in daily search while retail margins contracted sharply. An event-study design shows that this shock-induced search increase causally reduced retail prices and margins, with 95th- versus 5th-percentile exposure implying an 8% margin reduction at the peak. The implied loss to retailer margins peaked at £5.2 million per week, around £650 per station. We rationalise these findings with a model in which large, rapid price increases raise consumer attention and price sensitivity, intensifying competition and compressing margins. More broadly, supply shocks can therefore change not only firms' costs but also the demand conditions governing how those costs are passed through. Consistent with the model's additional predictions, pass-through is approximately complete and symmetric before the invasion, but lower and temporarily exhibits a pronounced rockets-and-feathers pattern afterwards