Is a subsidy to gasoline wholesaler effective?


Mitsuo Shiota


November 17, 2021

Nikkei reported on November 17, 2021 that Ministry of Economy, Trade and Industry (METI) is considering a subsidy to gasoline wholesalers to suppress gasoline retail prices when they rise to higher than 170 yen per litre.

Nikkei showed a skeptical view saying, “As the number of retailers has decreased, the retailers may not reduce retail prices even if wholesale prices fall.”

So I study retail and wholesale gasoline prices in Japan using the data from Agency for National Resources Energy.

Differences between retail and wholesale prices have been increasing since 2016. The mean difference was 12 yen per litre from 2000 July to 2015 December, and is 18 in 2021 September. This may reflect the reduced competition among retailers.

If the gasoline market is completely competitive, the proposed subsidy makes sense. However, the wholesaler market is dominated by the Big 3, who have also some influence on the retailers under their brands. When the proposed subsidy is enacted, they might be incentivized to raise prices. I will continue to watch.