Motorists being 'conditioned' to accept higher petrol prices


April 18, 2019 06:30:14

Adelaide motorists may have been conditioned to accept increasingly higher petrol prices, the RAA has warned, as regular unleaded spiked above $1.60 per litre this week with seemingly little public complaint.

RAA technical advisory service manager Andrew Clark said retailers had this week nudged their profit margin higher than usual, about 30 cents per litre above wholesale costs, at the peak of South Australia’s 10-day fuel cycle.

“We think they have overshot the mark a bit,” he said.

“We’re certainly not happy it’s breached into the $1.60s; we thought it would stay under that.”

Mr Clark said that while the high points of the fuel cycle had been getting higher, the level of protest from the public, anecdotally, seemed to be lessening.

He said it was almost like a “slow sort of conditioning” so that the high prices came as less of a shock.

Adelaide motorist Gavin said he was caught out when he had to fill up on Tuesday for 161.9 cents a litre.

“Not long ago it was just over $1 a litre, and then all of a sudden it’s that high,” he said.

“It’s up and down all the time and you don’t know when it’s going to happen next.

“I reckon they spike it higher each time, just slowly increase it without you realising.”

Mr Clark said motorists travelling over Easter were likely to enjoy only minor relief, with prices expected to drop just eight cents per litre by Good Friday — although prices in the regions (for now) remained between 10 and 20 cents cheaper than the city.

Conditioning a secondary effect

Associate Professor Nicolas de Roos from the University of Sydney said retail prices followed broad movements in the wholesale price of refined fuel, which was itself affected by international factors such as crude prices and exchange rates.

He said a somewhat “unconvincing” argument for cyclical pricing was that it enabled retailers to “aggressively undercut each other, leading to prices that came down to the wholesale price”.

“And then, with margins at unsustainably low levels, retailers raise their prices to start a new cycle.”

An alternative theory, Dr de Roos said, was that retailers were explicitly colluding, which was a violation of antitrust laws, or tacitly coordinating by raising prices “without direct communication”.

He said the latter was not a prosecutable practice and he and a colleague had found some “compelling evidence” of it in the Perth market for a recent academic paper.

His “favourite explanation”, however, was that it gave consumers a hard time working out whether a particular retailer was offering a good price.

“For example, if consumers see prices regularly fluctuate between $1.30 and $1.50, a retailer offering a price of $1.40 on any given day will seem unremarkable, even if all other retailers set a price of $1.50 on the same day.

“This minimises incentive for firms to aggressively lower prices.

“By contrast if prices are more stable, a retailer setting a lower price than their competitors may be quite noticeable and may attract many customers, and there may therefore be a greater incentive to lower prices.

“As a result, competition may be softer with cyclical pricing compared to more stable pricing.”

Questions around real-time reporting

Mr Clark called on the State Government to honour its election commitment to rollout mandatory real-time price reporting.

“As we’ve seen in other states, visibility of real-time fuel pricing provides motorists with the best opportunity to compare prices and reduce their fuel bills,” he said.

But the Government recently told Parliament that it had been unable to find a workable solution with the RAA to provide access to the data or agree on a model.

A spokesman told the ABC the Government was honouring “its commitment to explore all regulatory options”.

“Regrettably, concerns have been raised that real-time fuel pricing may have the perverse effect of increasing the price of fuel, especially after considering the experience in other jurisdictions,” he said.

“We will now evaluate the performance of the current Queensland Government trial and continue to work with the RAA to find the best solution.”

Individual awareness is key

Dr de Roos said mandatory price reporting had in been in place in Western Australia since 2001 and in New South Wales since mid-2016, but he had found little evidence it had led to sustained decreases in retail margins.

“I think the issue is that the majority of motorists are not taking advantage of these services,” he said.

“So firms setting higher prices than their rivals are still able to attract some consumers who are not aware that they are paying higher prices.

“If mandatory price reporting is implemented and the majority of consumers take advantage of it, then this may well make a difference.”

The more convenient the information, Dr de Roos said, the more likely it would be used, and monetary incentives could be used to encourage motorists to install pricing apps.

“At the individual motorist level, there are payoffs to becoming better informed about prices,” he said.

“Consumers who pay some attention, for example, by consulting the ACCC website can get a good idea about the timing of price spikes and purchase instead at the troughs in prices.”

Mr Clark said it took about 10 days for prices to decrease to the bottom of the cycle — often going below wholesale costs — and motorists paying attention could benefit from that, although “when you have to fill up, you have to fill up”.

But despite pubic perception to the contrary, he said the cycle did not coincide with weekends nor public holidays.

“It sounds funny that there is no connection, but we can’t see any correlations with the timing,” Mr Clark said.

“If you look at the cycle now, it’s a nice, smooth, flowing graph and it’s just landed where it’s landed.”










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