Wednesday, December 19, 2007

How to cut the price of petrol... the right way

The retail margin charged for petrol could shrink by 1.9 cents per litre within months under a radical scheme set to be introduced by the Rudd Labor government.

The “FuelWatch” scheme, already in force in Western Australia freezes the price of petrol at each service station for 24 hours each day and publicises it the evening before.

It allows drivers with access to the internet to know with certainty before they set out each morning which service station will be charging which price...

Assistant Treasurer Chris Bowen yesterday promised to investigate taking it national as part of a response to an Australian Competition and Consumer Commission investigation into fuel prices commissioned by the previous Treasurer Peter Costello.

He also gave the ACCC Chairman Graeme Samuel the formal power to monitor petrol prices and wrote to his state and territory counterparts asking them for nominations for the new post Petrol Commissioner within the ACCC.

FuelWatch, introduced in Western Australia in 2001, requires each service station to notify a central authority of its next day’s prices by 2.00pm. The prices are made available by an automated telephone service, by email and by the internet from 4.00pm and have to apply from 6.00am the next day for 24 hours.

The series of 24-hour price freezes makes it hard for stations to tacitly collude by pushing up their prices, seeing whether others follow and then quickly bringing them back down if they do not.

The ACCC Chairman Graeme Samuel said yesterday that in other states petrol retailers had an unfair advantage over consumers through the use of an information service called Informed Sources.

It allowed each station that subscribed to see minute-by-minute what each other station was charging. Sellers could lift their prices “with reduced risk.”

“If others do not respond the leader knows quickly and can reverse the price rise with little loss of price
sensitive consumers,” the report said.

Conversely retailers who might be tempted to cut their prices would know that that cut could be instantly matched making them “more reluctant to decrease
prices in search of greater sales than they otherwise would be.”

An econometric analysis conducted for the ACCC found that FuelWatch had cut the average price margin charged to Western Australian motorists by 1.9 cents per litre.

The scheme had not eliminated the weekly price cycle, but had made it less extreme.

The Assistant Treasurer Mr Bowen said he hoped to take FuelWatch national “within months”.

It would be a way of helping consumers through the provision of information rather than heavy-handed intervention.

The ACCC report found that while there was "no obvious evidence" of price fixing or collusion amongst retailers or refiners Australia’s petrol companies operated in a "comfortable oligopoly".

Caltex, BP, Mobil and Shell enjoyed “buy-sell” arrangements under which each undertook to supply petrol to the others in states in which they did not have refineries.

The arrangements reduced the incentive for the refiners to “take each other on” as wholesalers.

The Commission fund that while there was insufficient evidence “at this stage” to conclude that the buy-sell arrangements were illegal the refiners might “be well advised” to seek explicit authorisation for them under the Trade Practices Act.

The report also found that there ware significant impediments to the independent importing of petrol and recommended an audit of terminals suitable for importing.

It found that the use of Coles and Woolworths shopper dockets had on balance cut petrol prices. They were unlikely to have lifted supermarket prices.

Australia’s petrol was the world’s forth-cheapest and our taxes on petrol were the world’s third-lowest.

BP yesterday disputed the Commission’s contention that the West Australian FuelWatch scheme had lowered prices saying that its analysis showed it hadn’t cut prices at all.

1 comments:

Anonymous said...

"The ACCC report found that while there was "no obvious evidence" of price fixing or collusion amongst retailers or refiners Australia’s petrol companies operated in a "comfortable oligopoly"."

Why am I not surprised by this? Because I consulted for one of the major oil companies many years ago - and the management told me that this (constant monitoring via an Informed Sources like approach) as exactly what they were doing.

They treated it the same way that airlines approach their revenue management (airlines use differential seat pricing, oil companies use differential pricing across days and hours)

Luckily my confidentiality agreement expired years ago.

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