Petrol: What was that about?

Terry McCrann
December 24, 2015
Herald Sun
Petrol prices hide in plain sight.
WE have a problem: we have a competition tsar who hasn’t got a clue about the most basic dynamics of competition.
It’s hard to know which is worse: the original attempt by the ACCC, the Australian Competition and Consumer Commission, to attack what is arguably the, and is certainly a, key competitive foundation of the petrol industry; or its triumphant announcement yesterday of its failure?
Indeed, does it even know it failed; and failed on those two levels?
For it either does know, and was trying to put a positive spin on its performance; but unfortunately the pig still snorted right through the lipstick. Or it is as clueless about the outcome of what it “achieved”, as it is clueless about its attempt to attack competition.
It was a double failure because, first, it failed to get what it set out to achieve. It wanted to stop the petrol companies sharing real-time price information; they will continue to share real-time price information.
And secondly, more basically and more subtly, this also meant it failed to achieve its — albeit and obviously, completely unknowing — anti-competitive objective. Competition in petrol retailing has survived the ACCC and its chairman Rod Sims.
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Unlike the ACCC I’m also not going to pander to the fervent belief of far too many of you that petrol pricing is just one unending rip-off; because if you actually got what you think you want, petrol prices would on average be permanently higher.
Now this all turns on a business called Informed Sources (IS). It gathers site-by-site pricing of all the petrol stations across Australia and makes that available to its petrol-company customers in real-time every 15 or 30 minutes.
Shock, horror, might be your immediate reaction, as it was certainly that of Sims at the ACCC — mixed up with an excess of regulatory outrage. That must be all-but an exercise in: let’s get together and decide what our prices are going to be.
Indeed that’s precisely what the ACCC believed and so alleged; and I quote from it: this “allows those retailers to communicate with each other about their prices, and has the effect or likely effect of substantially lessening competition for the sale of petrol in Melbourne (and everywhere else).”
Problem is, that those prices are not exactly a secret, known only to the petrol companies. They are blazing out on full public view to everyone, on every petrol station canopy across the land.
To only partially digress, I was listening to talkback radio this week, when both host and listeners were venting Sims-style at the fact that Coles-Shell had lifted its prices around 30c a litre above its competitors.
No one seemed to twig two rather basic things; this was all “hiding” in plain sight; the price differences were exactly what people were ringing up about. And secondly, it wasn’t compulsory to buy at the Coles-Shell station; you were allowed to drive past to check out other sites and patronise the ones that were — self-evidently, as the callers were precisely pointing out — cheaper.
Yes, but, but, but, is probably the outraged and unthinking reaction. By checking the data from IS, all the other retailers can effectively “agree” with Shell and move their prices up to match. But they can do that anyway; it’s also not compulsory for a retailer to keep selling its goods at a discount, which is the case when petrol is at the bottom of the price cycle.
And something rather basic seems to have utterly escaped Sims. IS is also a mechanism for driving prices lower as self-evidently it also does. Coles-Shell is only lifting petrol prices by 30c because, duh, at some point it has previously cut them by much the same relative figure.
This is classic Sims/ACCC cognitive dissonance in regard to the petrol industry. Sixty-plus inquiries have frothed and fumed but ended up finding no evidence of a petrol cartel and indeed clear evidence of a competitive dynamic in which the driver is the clear winner.
But, but, echoing somewhere in Sims’s head, there mustbe a cartel hiding in there somewhere.
Each petrol retailer is perfectly entitled to monitor its competitor’s prices and then set its price accordingly — either matching it, beating it, or exceeding it, depending on its objectives.
All that IS does is enable it to do it far more efficiently and quickly than an individual company could do directly. But even that’s dubious in today’s world of smartphones and real-time connectivity. You could have a consumer-driven “Wiki-IS app” with drivers inputting prices 24/7 real-time.
Far more basically the ACCC doesn’t seem to understand that getting information on competitor pricing is the very basis of competition; that drives prices down to the level at which economic rents are eliminated.
It seems to think that only works if the information is available “equally” to seller and buyer; and “achieving” that was the basis of its belief — or claim — that it had won a victory yesterday.
Actually, no. Competition is driven by the seller knowing and responding to prices; and in the process getting consumers into its store/station.
Another critical disconnect is that a driver only needs to know local pricing differences; a Melbourne driver doesn’t need to know which is the cheapest station in Perth; they find out the local pricing that matters; by, well, driving past a few stations.
The much more pervasive information the petrol company gets is both a management assist and pro-competitive. If it were not, we’d never have the price cycle.
Apart from this, focus on the sheer regulatory ineptitude. The ACCC believed and argued the IS process was inherently anti-competitive. That the gathering of the real-time pricing information and its distribution to all the petrol companies enabled one or more of them to “signal” its (as the ACCC seems to think, only higher) prices, wink-wink style; and then everyone follows.
Well if that’s true, absolutely nothing has changed. The ACCC’s “victory” has left the de facto cartel in place; they can keep on “signalling”.
The only thing that’s changed is that consumers can also access that information by looking at the IS website. Or they can do what they’ve always done; drive past some stations.