Insert speculation on petrol price cycle here.

www.accc.gov.au/consumers/petrol-diesel-lpg/petrol-price-cycles#petrol-price-cycles-in-capital-cities

Price seems to swing from around $1.15 to $1.43 in Brisbane for example, tho based on what I've seen it sometimes dips below $1.10.

So if we take off the 10% GST and the petrol excise of $0.396, the companies are actually selling fuel for between $0.65 and $0.90 per litre, which means that often times the petrol companies are raising their prices by 40% overnight!

/engage pitchforks now.

I drive a diesel, so I'm destroying the environment, and luckily for me diesel price seems to sit very steady at around $1.25-$1.30. Might just be that whilst the companies are comfortable screwing over consumers, they know well enough to leave the big fish (trucking/transport companies) alone. Could you imagine if the cost of moving goods around the country fluctuated so wildly on a weekly basis?

Yeah it stinks.

It's probably on of the best examples of price fixing and anti-competitive behaviour in the country.

The companies change the prices together, by secret agreement.

Like most cartels they shaft us, because they can.

No one can prove the collusion because it's without any written agreement, even though it's as obvious as the sun rising every day.

Some people think it's all just fine and the ACCC is handling it adequately with their limited powers.....

Clearly, a 30-40% weekly price cycle in any other sector would be unheard of.

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Adriano said..
Like most cartels they shaft us, because they can.

Cartels are illegal in Australia (well, the last time I checked).

I think you do need a bit of market mechanics, otherwise the fuel stations would run out of fuel and that is bad for business because nobody will stop at an unreliable servo. The servo's are there to make a $$$$$, but also to provide a utility (basically that's what it is). In Adelaide at least, the price drops normally occur after the fuel tanker fills up the station.

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Adriano said..
The companies change the prices together, by secret agreement.

Like most cartels they shaft us, because they can.

No one can prove the collusion because it's without any written agreement, even though it's as obvious as the sun rising every day.

Some people think it's all just fine and the ACCC is handling it adequately with their limited powers.....

Clearly, a 30-40% weekly price cycle in any other sector would be unheard of.

It's a secret except that Adriano knows about it, but the ACCC don't. LOL

Talking to the Bhanji who owns the local Puma outlet who tells me that it is peculiar to Australia only.

Peculiar!

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Adriano said..
Clearly, a 30-40% weekly price cycle in any other sector would be unheard of.

Airfares, hotel rooms, tickets to sporting and other entertainment events, meals, drinks, movies, Prada handbags in Bali

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AUS1111 said..

Adriano said..
Clearly, a 30-40% weekly price cycle in any other sector would be unheard of.

Airfares, hotel rooms, tickets to sporting and other entertainment events, meals, drinks, movies, Prada handbags in Bali

Items you have listed, are fairly obviously supply and demand, with a dash of capitalist price gouging thrown in for good measure....

Petrol prices? Well if it was supply and demand the price curve is the wrong way around, so what is it?

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jn1 said..

Adriano said..
Like most cartels they shaft us, because they can.

Cartels are illegal in Australia (well, the last time I checked).

I think you do need a bit of market mechanics, otherwise the fuel stations would run out of fuel and that is bad for business because nobody will stop at an unreliable servo. The servo's are there to make a $$$$$, but also to provide a utility (basically that's what it is). In Adelaide at least, the price drops normally occur after the fuel tanker fills up the station.

Every petrol station in Adelaide gets refilled on the same night does it? I guess the petrol fairies do one state a night, so thats why we have the price cycle...

Except the price cycle doesn't follow a supply/demand curve. If it was supply and demand you would expect prices to gradually rise as demand exceeds supply. In this case, price spikes suddenly, and then gradually tapers off??

Oh and apparently diesel never runs out cause it's always the same price?

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swoosh said..
Items you have listed, are fairly obviously supply and demand, with a dash of capitalist price gouging thrown in for good measure....

Petrol prices? Well if it was supply and demand the price curve is the wrong way around, so what is it?

It's an interesting question actually. I don't know the answer but will find out. It is a form of price discrimination but I don't know how sophisticated it is (as in airlines) or whether it is the retail or wholesale margin that is wildly moving.

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AUS1111 said..

swoosh said..
Items you have listed, are fairly obviously supply and demand, with a dash of capitalist price gouging thrown in for good measure....

Petrol prices? Well if it was supply and demand the price curve is the wrong way around, so what is it?

It's an interesting question actually. I don't know the answer but will find out. It is a form of price discrimination but I don't know how sophisticated it is (as in airlines) or whether it is the retail or wholesale margin that is wildly moving.

According to ACCC link

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Price cycles are the result of deliberate pricing policies of petrol retailers, and are not directly related to changes in wholesale costs.

OK; think I have figured it out a priori. The changes that you see in pricing are entirely at the retail level; wholesale prices only change in line with input prices, exchanges rates and so on.

Essentially the retailer attempts to practice price discrimination, that is to sell at as low a price as necessary to price-conscious consumers, as well as making the maximum possible margin on consumers who are not sensitive to price. This is done by varying prices such that at some point in the cycle they are low enough to attract the price-conscious consumers. These customers are patient and/ or knowledgeable enough to buy only at the low point, and by discounting on certain days, the retailer does not lose the opportunity to sell to these customers. Even though prices are high most of the time, most of these customers are not lost.

Customers who are not price-conscious, on the other hand, will buy randomly. At times they will benefit accidentally from the low prices on offer at the base of the cycle, but on average they will pay a higher price than would otherwise be the case if the fluctuating price model were not in use. In this way profits are maximised in a competitive environment. ACCC are OK with this because there is no cartel operating and because all consumers have the opportunity to buy at the bottom of the price cycle if they educate themselves. At the bottom of the cycle consumers benefit from genuine competition. Hence the efforts of governments to promote this via "Fuelwatch" and so on.

If the retailer simply left prices at a steady level, they would neither capture the business of price-conscious consumers, nor maximise profits from customers who are not price-conscious.

I must admit I never look at the price before I buy fuel (but I don't drive that much), so I fall into the second category, or at least I did!

It goes up on Thursday as that is paypay for most and people fill up for the weekend.
Easy way to win- always buy on monday with a voucher and don't buy a thing in their little petrol station shop.

On another note when did they stop selling stuff for motorists? Local one had no fuses. Another, about 3 different oils (none of which thin enough for many modern engines) . Blank looks from staff when asked .

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swoosh said..

AUS1111 said..

Adriano said..
Clearly, a 30-40% weekly price cycle in any other sector would be unheard of.

Airfares, hotel rooms, tickets to sporting and other entertainment events, meals, drinks, movies, Prada handbags in Bali

Items you have listed, are fairly obviously supply and demand, with a dash of capitalist price gouging thrown in for good measure....

Petrol prices? Well if it was supply and demand the price curve is the wrong way around, so what is it?

Khan Academy - Law of Supply
www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium/supply-curve-tutorial/v/law-of-supply

One could argue that, taking Adelaide's graph below there, that more people fill up on the weekend, but the the data doesn't correlate at all to any of the other cities, that have patterns running at n day cycles. Using Adelaide below again it can't be that the tankers arrive at the stations on Fridays because, as swoosh pointed out, that is the opposite of a supply curve.

They are cycles nonetheless, which makes me wonder what they actually are.

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Mark _australia said..
It goes up on Thursday as that is paypay for most and people fill up for the weekend.
Easy way to win- always buy on monday with a voucher and don't buy a thing in their little petrol station shop.

On another note when did they stop selling stuff for motorists? Local one had no fuses. Another, about 3 different oils (none of which thin enough for many modern engines) . Blank looks from staff when asked .

Explain Brisbane then:

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Mark _australia said..



On another note when did they stop selling stuff for motorists? Local one had no fuses. Another, about 3 different oils (none of which thin enough for many modern engines) . Blank looks from staff when asked .

They arnt stations to service ones car anymore.
They do however sell ridiculously priced drinks and lollies to every second customer.

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AUS1111 said..
OK; think I have figured it out a priori. The changes that you see in pricing are entirely at the retail level; wholesale prices only change in line with input prices, exchanges rates and so on.

Essentially the retailer attempts to practice price discrimination, that is to sell at as low a price as necessary to price-conscious consumers, as well as making the maximum possible margin on consumers who are not sensitive to price. This is done by varying prices such that at some point in the cycle they are low enough to attract the price-conscious consumers. These customers are patient and/ or knowledgeable enough to buy only at the low point, and by discounting on certain days, the retailer does not lose the opportunity to sell to these customers. Even though prices are high most of the time, most of these customers are not lost.

Customers who are not price-conscious, on the other hand, will buy randomly. At times they will benefit accidentally from the low prices on offer at the base of the cycle, but on average they will pay a higher price than would otherwise be the case if the fluctuating price model were not in use. In this way profits are maximised in a competitive environment. ACCC are OK with this because there is no cartel operating and because all consumers have the opportunity to buy at the bottom of the price cycle if they educate themselves. At the bottom of the cycle consumers benefit from genuine competition. Hence the efforts of governments to promote this via "Fuelwatch" and so on.

If the retailer simply left prices at a steady level, they would neither capture the business of price-conscious consumers, nor maximise profits from customers who are not price-conscious.

I must admit I never look at the price before I buy fuel (but I don't drive that much), so I fall into the second category, or at least I did!

Come off it. The weekly price cycle only exists to take advantage of consumer habits like weekend filling and has nothing to do with wholesale costs.

It's a scam and we all know it.

Obviously, since every retailer sets the prices up and down within hours of each other, they're in collusion.

Unless it's the petrol fairy that does it?

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Adriano said..
Come off it. The weekly price cycle only exists to take advantage of consumer habits like weekend filling and has nothing to do with wholesale costs.

Ummm...that's exactly what I said.

"Oh come off it! I agree with you completely!" WTF?

But you dispute there is any collusion between retailers? The price cycle is just chance? WTF?

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Adriano said..
Obviously, since every retailer sets the prices up and down within hours of each other, they're in collusion.

Unless it's the petrol fairy that does it?

It's not collusion, it's competition. Prices move in response to competition - there is no need to collude; the prices are on big signs for all to see.

The reality is that retail fuel consumers fall into one of two broad categories; those who carefully check the price and buy when it is cheap, and those (like me) who just buy whenever and wherever it is convenient. Collusion is not necessary and this pricing system clearly works otherwise it wouldn't happen. There must be plenty of mugs like me.

Nonsense.

What competition is there if all prices move synchronously every week by a predictable pattern based on taking advantage of consumer habits?

Competition would be one retailer standing out by setting a reasonable retail price that reflected wholesale prices over a medium term.

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Adriano said..
What competition is there if all prices move synchronously every week by a predictable pattern based on taking advantage of consumer habits?

OK, in "economist-speak" there are two demand curves; one for the group of consumers who exhibit high price elasticity of demand, and another for consumers who have low price elasticity (their buying decision is not affected much by price). The system is set up to take advantage of the second group.

If there were no second group - if everyone cared about the price - it wouldn't be like this.

ACCC don't care because there is no barrier to joining the first group, you just have to care. There is no collusion because there is no advantage to collusion - any retailer can join without the need for costly collusion.

For competition to drive prices down to marginal cost, the buyers have to care about the price. It isn't a scam, it's just capitalism.

Well then mate if that's "capitalism", it stinks.

Seriously, if you think people don't care enough about price and that's why retailers get away with it, you're dreaming.

Retailers do it, because they know it maximises profits by exploiting consumer habits and needs.

When every retailer is price matching, there is zero competition except at the very margins during those few hours where all shopfronts are adjusting prices almost in unison.

Competition would be a retailer going it alone and setting more stable prices over a longer timeframe, that more reasonably reflected wholesale prices.

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Adriano said..
Well then mate if that's "capitalism", it stinks.

If you say so. As an economist I don't spend much time worrying about the merits or otherwise of capitalism, I just work within it.

Someone asked why retail petrol prices cycle, there's your answer. If I'm wrong then I must be the only person who doesn't shop around for the best price before I fuel up...but I don't think so.

How can you shop around for the best price if the retailers basically have the same price? They're never more than a few cents apart on the weekly cycle. It doesn't matter whether you're an economist or not, everyone can see there is collusion in the market of some kind.

If there was true competition, it would be reflected in one or more retailers bucking the price fixing cycle that is designed to take advantage of people when they most need fuel, like around weekends.

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Adriano said..


How can you shop around for the best price if the retailers basically have the same price? They're never more than a few cents apart on the weekly cycle. It doesn't matter whether you're an economist or not, everyone can see there is collusion in the market of some kind.

If there was true competition, it would be reflected in one or more retailers bucking the price fixing cycle that is designed to take advantage of people when they most need fuel, like around weekends.

Monday mornings here the fuel is generally the cheapest it will be all week, servo near me is 5c cheaper than anywhere else. Why you ask?
I don't know I say but its a fact. Then you have Puma servos that are at a discount price all week but don't drop that low.

Not sure what the situation is over east but that's the rub here...

Sounds better than the east coast debacle. We don't have a Puma equivalent here. There are some very small local servos that have more stable prices but they're slightly higher than the median weekly price.

Perhaps that's why AUS thinks all is fine. It's not as bad over in the west.

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Adriano said..
Sounds better than the east coast debacle. We don't have a Puma equivalent here. There are some very small local servos that have more stable prices but they're slightly higher than the median weekly price.

Perhaps that's why AUS thinks all is fine. It's not as bad over in the west.

Puma is an RAC discount servo so they run low prices all the time but on Mondays their fuel is normally 5-6c more than the others so if you get caught out during the week Puma is cheaper. I think the servo near me is a Caltex.

Adriano,

Perfect competition would see everyone at about the same price. Anyone who unilaterally dropped their price would immediately cause all other competitors to drop their prices too to remain competitive.

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Adriano said..


How can you shop around for the best price if the retailers basically have the same price?

Of course the prices are going to be the same! Why would a station undercut the opposition, sell out in two days and shut up shop until the next tanker delivery? That won't maximise profits.
You've got an essential oil, payday on Thursday, tanker deliveries once a week, more demand prior to holidays. Finite storage in both cars and petrol stations. Neither can afford to run out. All trying to conserve or maximise dollars. A complex bit of economics going on but not at all surprising that prices fluctuate wildly in unison. And for motorists there is always a handy station and mostly not a bad queue. Win, win.


Same goes for Easter Eggs.

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Cambodge said..
Adriano,

Perfect competition would see everyone at about the same price. Anyone who unilaterally dropped their price would immediately cause all other competitors to drop their prices too to remain competitive.

Yeah. Would that be so bad? At least one wouldn't get caught out paying 30% more for petrol....

In Darwin the Gov had to step in and force prices down ..they were highest price yet closer to Singapore refineries .. it worked ..the Airlines are just as bad gouging families at XMas & school holidays ....