Price Setting in Transition: The Effect of Takeover on a Petroleum Firm

Abstract

In this paper, I investigate the effect of the takeover of a Slovak petroleum firm on its price setting mechanism. In particular, I tested the changes in the reaction of output (fuel) price on input (dollar and crude oil) prices and competitors' prices (approximated by the reference Commodity Exchange fuel price). I find that during the time when the company was owned and controlled by managers, only negative changes in input prices were reflected in the output price. After the takeover of the firm by a foreign strategic investor, I identify a different price setting mechanism: the fuel price starts to react symmetrically to the input prices. The fuel price, however, reacts asymmetrically to the competitors' prices. In particular, the fuel price reacts to Brent increases and Gasoline decreases. Consecutive regression confirmed the hypothesis that before takeover the composite input costs and competitors' prices have very little (or no) impact on fuel price. After takeover, composite input costs as well as competitors' prices start to play an important role in price setting.

JEL Classification: Q40, D21, L11, L71