ON THE NEXUS BETWEEN COMPETITION AND ASYMMETRY IN NIGERIA’S PETROLEUM MARKET

Authors: C. Chris Ofonyelu* & Pius Isah

ABSTRACT

Economic theory suggests that an inverse relationship exists between competition and asymmetries in the market. In the case of the Nigeria’s downstream petroleum market, the entry of Dangote refinery into the market have intensified rivalry, stabilized product availability and raised pricing elasticity. This study examined the nexus between competition and asymmetric pricing in the Nigeria’s downstream petroleum market by comparing the firms’ market shares, the frequency of price changes and cross correlations between crude oil prices and local petroleum prices per liters. The results showed that these magnitudes have declined steadily in the last two years as competitions heightened. The price reductions were driven mainly by efficiency gains and competition. The study affirms an inverse relationship between competition and asymmetric market conditions in Nigerian downstream petroleum market.

REFERENCES

  1. Adam Smith. (1776). An inquiry into the nature and causes of the wealth of nations. W. Strahan & T. Cadell.
  2. Adebiyi, A. A. (2021). Deregulation and petroleum pricing efficiency in Nigeria. Nigerian Journal of Economic Policy, 28(2), 55–72.
  3. Adesina, L. O. (2022). Efficiency gains and price convergence in petroleum markets. Energy Policy Journal, 19(3), 200–215.
  4. Adeyemi, K. T. (2022). Oligopoly and price rigidity in Nigeria’s downstream oil market. Nigerian Economic Review, 18(1), 77–95.
  5. Afolabi, D. A. (2020). Price rigidity and adjustment costs in deregulated markets. Nigerian Journal of Economics, 14(2), 66–84.
  6. Antoine Augustin Cournot. (1838). Researches into the mathematical principles of the theory of wealth. Macmillan.
  7. Bello, R. A. (2023). Market transparency and consumer welfare in Nigeria’s petroleum industry. Economic Insights Africa, 10(1), 120–138.
  8. Bulow, J. I., & Pfleiderer, P. (1983). A note on the effect of cost changes on prices. Journal of Political Economy, 91(1), 182–185. https://doi.org/10.1086/261137
  9. Central Bank of Nigeria. (Various years). Statistical bulletin. Central Bank of Nigeria
  10. Edward Mason. (1939). Price and production policies of large-scale enterprise. American Economic Review, 29(1), 61–74.
  11. Egbetokun, A. A. (2024). Competition and asymmetric pricing in emerging petroleum markets. International Energy Journal, 12(1), 55–73.
  12. Eze, C. O., & Thomas, P. A. (2024). Price transmission dynamics in deregulated petroleum markets: Evidence from Nigeria. International Journal of Energy Economics, 11(1), 33–50.
  13. George Akerlof (1970). The market for “lemons”: Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488–500. https://doi.org/10.2307/1879431
  14. Hassan, T. M. (2022). Digital price monitoring and competition in energy markets. Journal of Market Innovation, 6(2), 70–88.
  15. Ibrahim, M. S., & Sule, A. U. (2023). Oligopolistic competition and price transmission in petroleum markets. Energy Policy Review, 15(2), 55–72.
  16. Joe Bain. (1951). Relation of profit rate to industry concentration: American manufacturing, 1936–1940. Quarterly Journal of Economics, 65(3), 293–324. https://doi.org/10.2307/1882217
  17. Joseph Bertrand. (1883). Review of Cournot’s Recherches sur les principes mathématiques de la théorie des richesses. Journal des Savants, 499–508.
  18. Jürgen Meyer, & von Cramon-Taubadel, S. (2004). Asymmetric price transmission: A survey. Journal of Agricultural Economics, 55(3), 581–611. https://doi.org/10.1111/j.1477-9552.2004.tb00116.x
  19. Lawal, H. O. (2024). Supply chain efficiency and fuel pricing in Nigeria. African Energy Review, 5(1), 60–78.
  20. National Bureau of Statistics. (Various years). Energy statistics bulletin. National Bureau of Statistics Nigeria
  21. Nicholas Gregory Mankiw. (1985). Small menu costs and large business cycles: A macroeconomic model of monopoly. Quarterly Journal of Economics, 100(2), 529–537. https://doi.org/10.2307/1885391
  22. Nigerian Midstream and Downstream Petroleum Regulatory Authority. (Various years). Retail PMS price reports and downstream market statistics. NMDPRA Official Website
  23. Nigerian National Petroleum Company Limited. (Various years). NNPC annual statistical bulletin and downstream operational reports. NNPC Limited
  24. Nwankwo, E. C. (2022). Competition and pricing responsiveness in Nigeria’s downstream sector. Energy Market Studies, 8(3), 140–158.
  25. Ogunleye, T. A. (2022). Asymmetric fuel pricing and consumer welfare in Nigeria. Energy Economics Journal, 30(4), 210–228.
  26. Ogunrinola, O. I. (2020). Consumer behaviour and price dispersion in fuel markets. Nigerian Journal of Consumer Economics, 3(1), 15–30.
  27. Ojo, A. O. (2020). Market structure and pricing efficiency in Nigeria’s petroleum sector. Journal of Energy Economics and Policy, 12(2), 45–60.
  28. Ojo, A. O., & Adegboye, F. T. (2023). Market contestability and petroleum pricing reforms in Nigeria. Policy and Energy Journal, 7(1), 25–41.
  29. Oladipo, K. A. (2023). Deregulation and fuel price efficiency in Nigeria. Energy Policy and Development, 9(2), 130–148.
  30. Olatunji, S. O. (2021). Information transparency and pricing behaviour in Nigeria’s oil sector. Journal of African Markets, 6(2), 89–104.
  31. Organization of the Petroleum Exporting Countries. (Various years). Annual statistical bulletin. OPEC Official Website
  32. Robert Bacon. (1991). Rockets and feathers: The asymmetric speed of adjustment of U.K. retail gasoline prices to cost changes. Energy Economics, 13(3), 211–218. https://doi.org/10.1016/0140-9883(91)90022-R
  33. Salisu, A. A., & Isah, P. I. (2023). Crude oil price shocks and domestic fuel pricing dynamics in Nigeria. Energy Economics Letters, 10(2), 44–59.
  34. Severin Borenstein, Cameron, A. C., & Gilbert, R. J. (1997). Do gasoline prices respond asymmetrically to crude oil price changes? Quarterly Journal of Economics, 112(1), 305–339. https://doi.org/10.1162/003355397555118
  35. S. Energy Information Administration. (Various years). Brent crude oil spot price data series. U.S. Energy Information Administration
  36. Umar, S. A. (2021). Price transmission and market integration in Nigeria’s petroleum sector. CBN Economic and Financial Review, 59(4), 101–120.
  37. William Baumol, John Panzar, & Robert Willig. (1982). Contestable markets and the theory of industry structure. Harcourt Brace Jovanovich.
  38. Yusuf, M. A. (2024). Structural reforms and competition in Nigeria’s oil industry. Journal of Development Economics Africa, 13(2), 90–108.