The Optimal Reset-Hour of a Once-Daily Petrol Price Increase Limit

TL;DR

This study determines the optimal daily reset time for petrol price limits to minimize overall prices, finding that an 11:00 reset balances consumer and firm interests by maintaining a constant price throughout the day.

Contribution

It introduces a model to identify the optimal reset hour for daily petrol price limits based on consumer price sensitivity and traffic data.

Findings

11:00 reset minimizes average prices across the day

Constant prices throughout the day result from the optimal reset

Morning prices decrease, evening prices increase with the 11:00 reset

Abstract

A German ministry recently proposed a limit of at most one price increase per day for petrol stations. At what time should the price reset be allowed in order to lower price levels the most throughout the day? To answer this question, I infer the share of price-sensitive consumers for every hour of the day from German petrol station price data, based on a simple spatial-competition model. I focus on weekdays, which are the relevant target because commuter demand is less flexible than weekend demand. Hourly petrol station prices peak at 07:00 and bottom out at 19:00. Given the inferred composition of price-sensitivity throughout the day and hourly passenger-car traffic frequencies as a proxy for quantity, I evaluate every possible reset-hour of the new policy. The lowest traffic-weighted average price is achieved by an 11:00 reset. With this reset-hour, the resulting equilibrium price throughout the day is constant. This would lead to lower prices in the morning but higher prices in the evening, harming price-sensitive consumers but benefiting morning commuters and firms.