Thursday, August 27, 2009


On reading the latest announcement by the ACCC on petrol prices a friend wrote to me noting "how very helpful of the Commission to tell us that the petrol companies have changed the day on which they choose to exercise the market power that the Commission insists they don’t have." (The story is that the cheap petrol day is now Wednesday not Tuesday).

I've previously waxed lyrical on the subject of the abject error of the ACCC in permitting the "shop a docket" scheme for petrol retailing. But their ongoing gyrations on petrol pricing are a wonder to behold. I think someone needs to write a deeper piece about the economics of petrol pricing.

It can, of course, be explained under a competitive market model with the assumption that demand has been lower on Tuesdays and hence price drops back – put another way it is the efficient way to average the high fixed costs of petrol retailing to recover more of the fixed costs on the days of highest demand. The shift to Wednesday is then explained as a response by the market to the information about cheap Tuesdays – people have shifted their demand.

But this analysis begs two questions. The first is why the feature doesn’t occur equally in all Australian markets. The second is why motorists have needed a regulator to identify the cycle for them – petrol pricing isn’t exactly a secret.

To this could be added my friend's final comment "Also, why does this only occur in this market of all the petrol markets in the world?"

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