Labor's "fuelwatch" - Will it work?
Earlier today, somebody at QUT asked my opinion about Labor's 'Fuelwatch' scheme, and whether or not it would 'work' - i.e. lower prices and/or improve competition. The scheme itself has been getting a lot of media attention lately.
Fuelwatch is designed to address problems of imperfect information, a/k/a information asymmetry, in relation to pricing in the market for retail petrol. Consumers basically have two ways of finding out the current price of petrol - they can drive past a service station and look, or they can try looking on the Internet. However, not all service station's prices are on the Internet, and there is no guarantee that the prices on the Internet are accurate - the service station in question could have recently increased their prices. In Brisbane, I've seen price hikes at the same service station of up to 15c/l from morning to evening on the same day. Consumers also have no way of knowing what the prices will be in the future, except for general trends such as prices being higher later in the week and on weekends, and holiday periods being generally higher.
Suppliers on the other hand, have better information. They know what their current prices are, and they probably know what the current pricing of their competitors is. They also know what their future pricing will be, and they may even know what the future pricing of their competitors will be. Petrol retailers can -- and in some cases, have -- called their competitors and said things like 'I have spoken to some [other competitors] and they are going up to X cents per litre at Y time. Will you support it?' (i.e. 'will you also raise your prices?'). See, e.g. ACCC v Leahy Petroleum [2007] FCA 794 at [913] where the ACCC sued, alleging unlawful price fixing, and failed because the trial judge found there wasn't a 'contract, arrangement or understanding' to fix prices.
The Fuelwatch scheme, as I understand it, will require all retailers of petrol to notify the ACCC (or whoever runs the scheme) the price at which they will sell petrol on the following day. The prices will be available on the Internet, and the retailers can only sell at that price. If the petrol station down the road is undercutting them, they can't drop their prices until the following day.
Whether Fuelwatch will 'work' will depend on whether the pro-competitive effects of consumers having access to better information about pricing (and thereby being able to make better purchasing decisions), and any consequential price competition which this encourages, will outweigh the anti-competitive effects of retailers being unable to engage in very-short-term discounting, possible stagnation of longer-term discounting (i.e. it has been suggested that the weekly 'cycle' of ~15c/l might drop to ~10c/l or lower), and increased compliance costs being passed onto consumers.
Opinionated as I am, I don't know whether it will 'work' or not. There are too many uncertainties, and I can't even make an educated guess.
Fuelwatch is designed to address problems of imperfect information, a/k/a information asymmetry, in relation to pricing in the market for retail petrol. Consumers basically have two ways of finding out the current price of petrol - they can drive past a service station and look, or they can try looking on the Internet. However, not all service station's prices are on the Internet, and there is no guarantee that the prices on the Internet are accurate - the service station in question could have recently increased their prices. In Brisbane, I've seen price hikes at the same service station of up to 15c/l from morning to evening on the same day. Consumers also have no way of knowing what the prices will be in the future, except for general trends such as prices being higher later in the week and on weekends, and holiday periods being generally higher.
Suppliers on the other hand, have better information. They know what their current prices are, and they probably know what the current pricing of their competitors is. They also know what their future pricing will be, and they may even know what the future pricing of their competitors will be. Petrol retailers can -- and in some cases, have -- called their competitors and said things like 'I have spoken to some [other competitors] and they are going up to X cents per litre at Y time. Will you support it?' (i.e. 'will you also raise your prices?'). See, e.g. ACCC v Leahy Petroleum [2007] FCA 794 at [913] where the ACCC sued, alleging unlawful price fixing, and failed because the trial judge found there wasn't a 'contract, arrangement or understanding' to fix prices.
The Fuelwatch scheme, as I understand it, will require all retailers of petrol to notify the ACCC (or whoever runs the scheme) the price at which they will sell petrol on the following day. The prices will be available on the Internet, and the retailers can only sell at that price. If the petrol station down the road is undercutting them, they can't drop their prices until the following day.
Whether Fuelwatch will 'work' will depend on whether the pro-competitive effects of consumers having access to better information about pricing (and thereby being able to make better purchasing decisions), and any consequential price competition which this encourages, will outweigh the anti-competitive effects of retailers being unable to engage in very-short-term discounting, possible stagnation of longer-term discounting (i.e. it has been suggested that the weekly 'cycle' of ~15c/l might drop to ~10c/l or lower), and increased compliance costs being passed onto consumers.
Opinionated as I am, I don't know whether it will 'work' or not. There are too many uncertainties, and I can't even make an educated guess.
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