Transparent fuel and grocery prices: time for another go?

On those occasions you have been the victim of what the economists call “information asymmetries.” That’s where the supplier of the product or service has more information at its fingertips than do consumers.

Take the petrol station example. Petrol Company A will know that in location 1 there is less competition so it can charge a higher price for petrol. In fact, the petrol company will know the price in near real time at all its service stations, as well as the price charged by its competitors.

The motorist, however, only has part of the picture. Motorists need to rely on their own “searches” such as when they drive by petrol stations or where they check an online service such as motormouth.com.au which provides limited and potentially out of date pricing information.

For the motorist these “searches” are far from perfect. Such “searches” are time consuming and ultimately futile as the searches are limited by time and place and prices can and do change in real time. In short, the information available to the motorists from the “searches” can very quickly get out of date.

Compare this to the pricing information available to the petrol companies and other petrol retailers such as Coles and Woolworths.

First, the major petrol retailers know the price at all their service stations in real time or near real time. Either they set the price or that information is available electronically as petrol transactions are tracked and that information is transmitted back to corporate HQ and to service providers such as a company called “Informed Sources.”

That brings us to the other part of the picture where the major petrol retailers know the price at their competitors service stations in real time or near real time. That’s where “Informed Sources” comes in. Informed Sources will collect and disseminate price information to its subscribers in near real time. That’s how the petrol companies and other major retailers know what their competitors charge and can respond accordingly. That pricing information allows the petrol retailers to charge different prices at different locations, a practice previously discussed and known as “geographic price discrimination.”

The problem is that motorists don’t know the prices at different service stations as quickly or as comprehensively as do the petrol retailers.

The answer? Simple, either petrol retailers make available online and in real time the prices at all their services stations, or the pricing information held by Informed Sources is also made available to motorists. Those simple suggestions would go all or almost all of the way to removing the information asymmetries faced by motorists that prevent them from identifying the cheapest petrol prices.

Sounds easy doesn’t it? Pricing information is already available to the petrol companies so it’s only a small step to provide it to motorists.

As for the cost of doing so, well, the electronic age in which we are living means that the cost of providing that information is miniscule in the scheme of things.

Or, as the economists would say the “marginal cost” of providing the information is near zero as the pricing information is automatically and electronically updated anyway for corporate accounting and reporting purposes.

The same goes for groceries. In Australia there is nothing that gives anything approaching full price transparency. Woolworths has a few thousand products online but the information is only for a fraction of the upwards of 30,000 products typically sold at a Woolworths supermarket. Worse for consumers the pricing information is updated only once a week.

The Woolworths “price check” website even states that if the standard shelf price changes during the week, the new shelf price on the website will only be updated the following Monday.

Yes, there is information online regarding weekly specials, but of course they would advertise those. What about the thousands of other products sold at a Woolworths? And, what about Coles? Well, Coles is still playing catch up and trails Woolworths on the provision of pricing information.

Why is it important to get full pricing transparency from Woolworths and Coles? Simply because Woolworths and Coles may still charge different prices for the same product in their respective stores in the same geographic area. The only way that consumers can ever know where to find the cheapest price for a particular product is to conduct their own “searches.” And, we know how futile they can be!

This is just another example of where Australian consumers are well and truly behind their overseas cousins. Not only do Australian consumers consistently face some of the highest levels of food inflation in the developed world, but just have a look at the mySupermarket website available to United Kingdom consumers.

Consumers in the UK have access to pricing information that Australian consumers can only dream about. The answer? Simple, either Woolworths and Coles make available online and in real time the prices of all the products sold at all their supermarkets or they make available their pricing information to a third party that can create an Australian version of the UK mySupermarket website.

So, with Australian consumers still the ongoing victims of “information asymmetries” you would think that the Federal Government would do something about it.

Yes, promises were made about petrol and grocery prices before the last Federal election by the then Labor Opposition. All we got after the election were the failed Fuelwatch and GroceryChoice schemes neither of which provided the real time information that’s so important to empower consumers.

With a new election around the corner will we see some new “promises” or will silence be golden?