Have you ever thought that you were being taken for a ride on petrol prices? Well, you have!

People joyously lining up to getting royally screwed

So how are you being ripped off? It’s simple really – once, of course, you know the games that can be played by the big oil companies and Coles and Woolworths.

Let’s begin at the retail level.

Here the rip off can occur in two basic ways. First, there is the practice of geographic price discrimination. This is where, for example, the same oil company charges one price for unleaded petrol at location A and a higher price for the same petrol at location B.

Why the higher price at some locations and lower prices at other locations?

Quite simply because the oil company can get away with the higher prices at those locations where there is little or no competition. At these higher priced locations there is simply no incentive for the oil company to lower its prices. Motorists simply pay a higher price than they would have if there had been independents in the local market.

Clearly, geographic price discrimination serves two purposes. To begin with, it allows the oil companies and Coles and Woolworths to gouge motorists in those locations where there is no competition from independents.

This gouging is nothing more than profiteering as the failure of competition in the local market means that consumers are being forced to pay much more than they would have if the local market had been vigorously competitive.

The profiteering gets larger as local competition fails in more and more areas.

Conveniently for the oil companies and Coles and Woolworths the geographic price discrimination can facilitate the destruction of local competition as the practice allows independents to be ambushed.

This can occur as the lower prices charged by the oil companies and Coles and Woolworths where there are independents can be subsidised by the higher prices in those areas where the big players don’t face any competition from independents.

In this way geographic price discrimination can be used in a predatory manner to target independents through at times below cost pricing with the clear aim of driving those independents out of business. The big players can sustain this below cost pricing against the independents through their higher prices in those areas where independents have been driven out of the local market.

Sadly for motorists the below cost pricing only lasts as long as the independents do, because once the independents are forced out of the local market prices will go up.

Why are independents so critical? For the simple reason that independents have to be aggressive on price to survive. For them the volume of petrol they sell is essential to their survival and maintaining or growing their volumes means that they have to always be sharp in their pricing. This explains the cheaper prices at independents.

Big players on the other hand can act as a cosy club. Why cut prices when they only cut their profit margin? If it’s only the oil companies and Coles and Woolworths in the market there is no incentive from them to sustain or even have a price war.

Of course, there may be the odd angry shot fired between the big players, but it’s far easier for them to behave in a “gentlemanly” manner by shadowing one another as that enables them to keep inflating prices and, hence profit margins, at the expense of motorists.

Nothing wrong with inflating profit margins you might say, but just remember that while “profit” is not a dirty word, “profiteering” is!

At some point, the failure of competition means that prices are not being kept in check by the market and this market failure allows those remaining big players to fleece consumers. Put simply, we don’t want profiteering as that demonstrates that the market is failing or has failed to the detriment of consumers.

In petrol, profiteering doesn’t just arise from geographic price discrimination. It can also arise when falls in the international price of petrol are not passed onto motorists locally as quickly as they should.

Since Australian wholesale and retail petrol prices are calculated by reference to an international price benchmark based in Singapore, our petrol prices will fluctuate according to changes in that benchmark.

The only problem is that while rises in the international benchmark are passed on to motorists very quickly, any falls take much longer to flow through.

Again, put simply motorists are being ripped off by the inevitable time delay in the big players fully passing on falls in the international benchmark price for petrol.

This has happened recently. With the international benchmark out of Singapore having fallen by upwards of $10 a barrel during the past 3 weeks, average retail prices have fallen ever so slowly during that time.

Why the delay in reducing local petrol prices? Well, the oil companies’ stranglehold over the wholesale level, as well as the power that they and Coles and Woolworths have in the retail market means that there is no real incentive for them to quickly pass onto motorists any falls in the international benchmark price for petrol.

After all, the oil companies and Coles and Woolworths have 93% of the retail market between them and the longer the delay in passing on the falls, the more that flows into their coffers at the expense of motorists.


Where are the ACCC and the Federal Government on all this? Well, they like to watch.

All we get from them is excuses and then more watching. Sounds like fiddling while competition burns. Meanwhile, consumers are paying the price and family budgets being stretched to breaking point by inflated petrol prices.

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25 comments

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    • watto says:

      10:04am | 22/07/09

      Thank god someone is prepared to speak out. Enjoying your posts!

    • Greg Pfeiffer says:

      11:49am | 22/07/09

      What? The free market is imperfect??

    • Christina O'Connor says:

      12:27pm | 22/07/09

      I, for one, am concerned that necessary regulatory powers are lacking to properly protect consumers over primary expenses such as petrol, groceries and interest rates. While the ACCC may aim to create an environment of fair prices for the consumer through barring what it perceives to be non-competitive corporate expansion and the like, it ultimately lacks the powers it needs to prevent the bigger players from slowly dominating the market and pushing the boundaries of charging as much as possible. It’s an uphill battle, trying to control a free market.

    • Pricey says:

      03:54pm | 22/07/09

      An excellent story…...... But if we get fuel watch working this kind of marketing will be a thing of the past!!!!!

    • Ben Payne says:

      05:23pm | 22/07/09

      Frank, I am sure you know this already, but competition does not, and can not work.  The fundamental basis of competition is multiplicity, inefficiency, and waste.

      The optimum state for any business in the free market system is monopoly (or any ‘competition free’ state, like duopoly or oligopoly), and any business that is not actively pursuing this goal will be forced out of the market by bigger, more ruthless players.

      The reason we have such ridiculous prices for oil is the artificial scarcity generated by the oil companies – if they limit production, and reduce efficiency, they can charge higher prices because the demand is greater than the supply, thereby creating higher profits from lower costs.

      And I must disagree with you, ‘profit’ is a dirty word – and as long profit is the motivation of business, ‘profiteering’ will always be the best means by which to attain it.

    • I Tarbell says:

      07:22pm | 22/07/09

      With all the “watching” by the ACCC and the Federal Government, it’s a wonder there hasn’t been a run on eye drops…........

      Keep it up Frank, hopefully one day the ACCC and the Government will grow a backbone and stand-up for consumers by taking on Woolworths/Coles and their buddies the big oil companies.

      Until that day comes, we consumers will continue to be screwed.

      .

    • bert winters says:

      01:19pm | 25/07/09

      every one has an opinion and every one agrees that we are being ripped off
      for instance diesel has always been 5 to 8 cents per litre cheaper but now we find it is up to 15 or 20 cents dearer. And with all commentators and tv current affairs programs screaming outrage what can be done about this? and if we cant alter it then we might as well lay down get screwed and shut up

    • kato says:

      04:20pm | 27/07/09

      I propose a “don’t buy fuel” period.  Pick 3 consecutive days where no one in the whole country buys fuel from shell or caltex.  See what they do then.

    • jim says:

      11:14am | 28/07/09

      or 3 days when no one buys petrol in australia from any petrol station they will be in agony

    • John P says:

      11:22am | 28/07/09

      So, the 10 - 15 cents per litre I am paying in the outer city areas in subsidising the major city dwellers - how fair is that!  How un australian is that - down right legal robbery under our noses!  Kevin, time for you to take up the arms for the battlers!

    • Peter says:

      11:37am | 28/07/09

      What needs also to be kept in mind here is that the very same principles flow through to the grocery trades that Woolworths and Coles have a duopoly on.
      Continue to buy ‘home brands’ and the independent grocery stores will go the way of the independent fuel retailers and the cost of groceries will continue the same upward spiral as petrol..

    • Shinsengumi says:

      11:42am | 28/07/09

      Erm, come on!  there’s a little more than that!  Last year if you cast your mind back, we had oil prices at 120-140 US a Barrel, and our petrol at the pump was $1.30-1.60 a litre.  Oil tumbled from $140~ish a barrel down to $40 a barrel, and our petrol price at the pump went to….  umm, $1.10 a litre? 

      The current price of oil (http://www.bloomberg.com/energy/) sits at around $68 US a barrel at the moment.  At those prices, we should be paying 75-85 cents a litre at the pump, even with exorbitant margins.  The current $1.20 a litre is a complete horrific eyegouge of a price! 

      Also, do a search for ‘Import Parity Pricing’ to see the deal our Federal Govt did with Big Oil.  You’ll see that the Aus Bureau of Statistics stopped publishing how much oil Australia imported versus actually producing here.  The last figures showed that of the oil we consume here in Aus, circa 70% is extracted here in Australia at, being generous, around $8 US a barrel.  Import parity pricing allows the oil companies to charge us as if the oil extracted here was actually imported from Saudi.  So not only are they getting ridiculous margins on top of the current international oil prices, they’re getting the fat margin from billing locally extracted oil at imported oil prices.  And you know for a fact that the lawmakers who penned this deal get fat kickbacks for looking the other way…  wink

    • Matt says:

      11:49am | 28/07/09

      Just don’t buy petrol from the big chains, but it from the independents

    • Mick says:

      11:50am | 28/07/09

      In the ACT we not only have the above practices, but also the “joys” of time critical price discrimination. It’s really quite remarkable that the price of petrol can suddenly rise by up to 14 cents per litre between Wednesday evening and Thursday morning, building up to the weekend! The price then drops in smaller increments until it reaches its low, usually on Wednesdays. This pattern keeps happening week in and week out, with no relief for us consumers. Of course the explanation is always “international petrol price movements”!

      Let’s be clear, this is yet another form of price gouging!

      It is surely time for our governments, of whichever party, and the ACCC to take a stand against these massive oil companies and grocery chains. It is time to eliminate such blatant and discriminatory pricing practices. The legislation would really be quite simple. What is lacking is the political and social drive to counter this culture of predatory and discriminatory pricing.

    • Kosta says:

      01:40pm | 28/07/09

      The Government is killing the independent with assistance from the duopoly. Let the independents import their own fuel directly from Singapore, it will be cheaper and of a higher grade as it is a minimum of 95 RON. Stop them being forced to buy from Caltex.

    • Ray says:

      06:06pm | 28/07/09

      This is not uncommon.  The two big chains have been doing this for years.  Butcher’s & greengrocers have been slammed over and over, when a new Woolies or Coles moves in - offers ‘massive’ discounts, and then the consumers (us) go in droves to the sales.  The smaller shops running on a finer line and perhaps only a bit better than ‘breaking even’ are pushed over into debt, end up closing up and then exit the market.  Once done, the bigger supermarket then goes and hikes its prices as there is no more competition.  I knew a greengrocer who had this happen directly.  They don’t also just stop at doing this (indirectly) they also make overt ‘oblique’ threats and work to intimidate wherever possible the smaller independent.
      It’s THE most disgusting form of business around, and totally throws good ‘business’ ethics and sense out the window.  There’s no reason to do it - people will still shop there, but since these big chains ‘can’ do it - they will.  Like the old joke - we don’t just bury you… we STOMP the ground you’re buried in PROPERLY, and then LAY CONCRETE!!! (just to make sure!)
      Pathetic & sad…

    • Paul says:

      06:59pm | 28/07/09

      Here in Wauchope and Port Macquarie we are paying 13 to 17 cents a litre more than Taree just 40 minutes down the road, Eevn Lauriton just 30 minutes down the road is way cheaper. The reason when I rang the petrol company and asked was “you live in a tourist area?” WTF? You mean because I live where people like to holiday the fuel companies can charge what they like? Geographically penalised. Is that legal? Seems so or the petrol company CEO’s would be in gaol.

    • Scarlet Breasted says:

      06:48am | 29/07/09

      What drives this entire system seems to have been somewhat overlooked, admittedly, the basis of all monopolies is greed, however, the major excuse (and to a certain extent it IS true) tendered by “Big Business” is to generate a profit which allows “another year of excellent growth” for the company share holders, dividend wise, plus the over the top salaries for the upper echelon of management - this applies across the spectrum of businesses!

    • Seanie says:

      03:15pm | 07/08/09

      Couldn’t agree more, but why limit this piece to simply petrol? Gentlemenly agreements exist for virtually all consumer goods.  Take for instance clothes, I recently purchased so-called name brands in the States for nearly 1/3 the price of the exact same clothes here.  All clothes were made in China or a nation much closer to Australia, but shipped and sold in the US for far cheaper.  Same applies to cars, the Holden Commodore which is built in Adelaide was sold in the States as the Pontaic G8 for less than much poorer equiped Aussie equivalent.  Its just part of being an Aussie I guess, expect to be ripped off for living in the best country in the world.

    • jason bingley says:

      04:45pm | 24/07/10

      we just have to face the facts corruption is rampant in our government.as long as we remain americas shadow things will only get much much worse.its a very sad fact.god bless america.YEAH RITE.the only way to beat them is vote with our feet start with family & friends.  we wont get into what woolies and coles food suppliers (mostly pharmaceutical companies)are adding to our food.WE ARE SCREWED.most food there i dont give to my dog.if me or u done what these multinationals do we d be in gaol,no question.

    • chris says:

      04:04am | 29/07/10

      ive had enough of these oil parasites ripping us off, the ACCC and the government are in on this scam this is why nothing is ever done, io conntacted the ACCC to ask why fuel prices are so high and i was told oil companies can charge any price they like as long as there is a market? i find this hard to believe, but if this is the accc attitude what chance do motorists have? we are being ripped off with fuel we are paying at least 50 cents more than we should be paying, fuel is worth no more than 70 or 80 cents a litre.. remove coles and woolworths from the fuel market and the price will fall, as coles and woolworths collude with shell and caltex and set their own prices.. supply, demand, or any other excuse has nothing to do with high prices, its a common excuse used by oil companies so they can keep raising the prices.. we need a media smear campaign against oil companies if the media kick up a fuss the oil companies will drop thier prices.. 1.33 a litree is nothing more than a ripp off .. fact is true fuel prices at present should be around 73 cents per litre…  we are paying over 50 cents per litre for profiteering and the government is knee deep in this scam.. its a fact…

    • gerald says:

      04:09am | 29/07/10

      if all of us boycotted, coles, woolworths, caltex, sheel. mobil, and bp.. and never bye fuel from these companies who ripp us off.. fuel prices would halve over night.. buy your fuel from indipendant service stations and not the big oil companies.. its the only way prices will come down.. cant rely on ther government or the accc as they have been in bed with the oil companies and ripping us off for years.. its why they never do a thing about fuel prices, they get a nice slice of the money pie….

    • jason bingley says:

      06:23pm | 26/08/10

      lets just hope with the ridiculous rigged election(2010)that the independants try and stick up for all.it takes 12 hours to count 97% of the votes then up to 2 weeks for the rest ,WHAT A SCAM.my mail takes 1 maybe 2days to come through.

    • peter austin says:

      01:27pm | 17/03/11

      it does not matter what the price of oil is or who sells it fuel is the goverment of the days gravey train thats the bottom line so we can waffle all we like nothing will ever change the present system

 

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