Wednesday, December 19, 2007

They’ve Got Us Over a Barrel

The release of the A.C.C.C. report on petrol pricing might be viewed as disappointing, as it finds no evidence of price fixing or collusion. However, it is interesting that the report finds a “comfortable oligopoly” between the big four oil companies, which hampers competition at the wholesale level. Despite the failure to identify anti competitive practices, the report is faint in its praise. It also provides a number of recommendations which may go some way to giving consumers a better deal.

First, the A.C.C.C. will now have monitoring powers over petrol prices on an ongoing basis, reporting annually to the government. The government will also appoint a petrol price commissioner. And there is a proposal to extend the Fuel watch program from Western Australia to operate nationally.

Fuelwatch is a program where the petrol companies are required to report the following day’s price by 2pm, which is made public. This has the effect of reducing market volatility and improving predictability for the consumer.

In the end though, petrol prices will continue to be high for a number of reasons. It is a precious resource and an essential commodity. Any company selling it can command a good price. The cost of all energy is going to continue increasing as environmental policies take effect. And in the end, the function of any business is to maximize its profit.

In the absence of more draconian price controls from government, that will always be true.

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