Opinion Why petrol is dearer in the capital

More independent players in Canberra would drive petrol prices down, writes Frank Zumbo.

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Associate Professor Frank Zumbo

OPINION: Why are Canberra petrol prices consistently higher than those in Sydney? Or worse, why are Canberra prices up to 10 cents a litre more than places like Albury, Casino and Ballina?

Well, the answer is simple. Don't be fooled by the usual excuses such as transport costs, the different volumes sold in different regional centres and that there's no prices cycle in regional centres. While each may be true to varying degrees, they are cleverly designed to divert attention from the real reason why Canberra motorists are consistently ripped off.

Put simply Canberra petrol prices are higher than they should be because of a lack of strong, price-competitive independent petrol retailers. Yes, some prices may be cheaper in some parts of Canberra but scratch the surface and you'll probably find one of those increasingly rare independent retailers in that area.

It only takes one strong price-competitive independent to bring down average prices. In the absence of a strong independent you are likely to find a cosy club of major petrol retailers more interested in raising profit margins at the expense of motorists.

What's the Australian Competition and Consumer response? Yes, you guessed it, an ACCC inquiry. Predictably, the ACCC has announced that it will look into the sharing of petrol pricing information by the oil companies, and Coles and Woolworths.

Why this latest ACCC inquiry? That's an interesting question for the simple reason that the sharing of pricing information is a longstanding practice in the petrol industry. The ACCC has long known and has long expressed concerns about the practice.

Why then the recent ACCC announcement that it's time to ''act'' on the issue? Not surprisingly everyone will have a theory. The cynics will suggest that with retail petrol prices having increasingly become political from a cost-of-living point of view it was time for the ACCC to be actually seen to be doing ''something'' for motorists.

To those who closely follow the petrol industry, the ACCC's announcement isn't surprising because in recent times the petrol industry games have become a little more blatant than usual.

Here the problem relates to the games apparently been played with petrol prices across Canberra and regional NSW. There's ordinarily no economic reason for retail petrol prices to vary so much between the Canberra and other regional centres. The discrepancies are just an easy way for petrol retailers to extract that much more out of motorists.

The problem lately is that, while retail prices continue to vary between regional centres, they have recently remained higher for longer periods, which means that motorists are not getting the lower prices they did in the past. Dangerously for motorists, those games tend to result in a bigger rip-off.

Significantly, the games at the retail level can theoretically be easier to play if the petrol retailers have access to extensive near real-time pricing information from their competitors. Since that extensive pricing information can be accessed from a company called Informed Sources, the question for the ACCC is whether that theoretical possibility is actually occurring in practice to the detriment of motorists.

The key question for the ACCC is whether access to extensive pricing information through Informed Sources may be allowing the petrol retailers to knowingly act in a coordinated manner in relation to petrol prices.

Are we to be excited about the ACCC inquiry? Well, that depends on whether the ACCC asks the curly questions.

Are the so-called shopper discounts offered by Coles and Woolworths genuine discounts? Is there predatory pricing by the big players to drive out the independent retailers who are so clearly important to putting downward pressure on petrol prices? Could Canberra motorists be paying less for petrol?

Time will tell whether the ACCC is up to the task of finally exposing the petrol industry games.

In the meantime, there's a much simpler way to deal with the games being played with retail prices and that's to require all petrol retailers to publish online in near real time all their retail prices. That way all motorists would have access to the same pricing information that petrol retailers have and the ACCC wouldn't get so excited about petrol retailers sharing pricing information through Informed Sources.

Giving motorists full online access to retail petrol prices in near real time would allow motorists to find the cheapest prices throughout the day. Indeed, by requiring the petrol retailers to publish online all their prices we would quickly see the development of smartphone apps that would automatically alert you via your GPS-enabled mobile phone when you are approaching a cheap petrol retailer.

A further critical way to empower Canberra motorists is to ensure that they have access to more independent petrol retailers. The ACT government is well placed to encourage the re-entry of new price-competitive independent retailers into the market in the same way it has promoted greater diversity and competition in the grocery sector through its supermarkets policy.

By facilitating the re-entry of strong independents into the Canberra petrol market, the ACT government would be giving Canberra motorists access to greater choice and the opportunity for lower petrol prices.

Frank Zumbo is an Associate Professor with the School of Business Law and Taxation at UNSW. 

This opinion piece first appeared in The Canberra Times