‘Cosy club’: Consumer advocate Professor Frank Zumbo has come up with three options to explain the variation in petrol prices.
‘Cosy club’: Consumer advocate Professor Frank Zumbo has come up with three options to explain the variation in petrol prices.

Professor examines cost of petrol

A COMPARISON of petrol pricing in rural NSW and Queensland in a time of falling oil prices reveals a staggering difference between the two states that could have the southerners muttering about conspiracy theories.

Consumer advocate Professor Frank Zumbo poses plenty of good questions about the decision-makers of the oil companies and petrol distributors in both states.

The University of NSW academic keeps a close watch on the petroleum industry and its distribution practices and has come up with three options that could explain why prices ‘defy gravity’ at times when consumers should be enjoying a benefit.

OPTION 1: A price war in Sydney forces the major oil companies to drop their wholesale prices to a below cost or predatory level.

“This is something called the waterbed effect,” Prof Zumbo said. “When the pressure comes down in one area the effect is a rise in price somewhere else.

“In this case it is the NSW rural consumer who suffers.

“It’s a matter of a cosy club of oil companies keeping the prices inflated in rural NSW.

“Why do they do it? Because they can.”

Prof Zumbo says the ACCC and the Federal Government’s petrol pricing commissioner have failed to stop oil companies forming pricing policies to disadvantage consumers.

OPTION 2: The major retailing outlets, including Coles and Woolworths, form their own ‘cosy club’ and follow one another’s pricing directions.

“They reason the consumer has become used to petrol prices being high and keep the retail price high to maximise their profits,” he said.

OPTION 3: This is perhaps the most sinister option: that competition and consumer affairs have been put on the back burner.

“Under Federal Labor the role of competition and consumer protection has been relegated from a department to oversee it to a parliamentary secretary,” Prof Zumbo said.

“They made a fuss about appointing a petrol price commissioner, but he has been so quiet most people would not know who he is.

“For the record, his name is Joe Dimasi, but where is he?

“We expect him and the ACCC to be putting the curly questions to the oil companies and petrol retailers about their pricing practices.”

Prof Zumbo said the lack of transparency about petrol pricing put consumers at a big disadvantage, allowing oil companies to set prices with little regard for the consumer.

The flow of information on petrol pricing reflects this.

“How many times have you driven by a petrol station offering one price, only to find another service station down the road offering a cheaper price?” Prof Zumbo asked.

“What if you had decided to go into the first service station to buy your petrol, only to later drive by the cheaper service station down the road? We have all been there and felt ripped off in the process.

“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.”

The reason behind this is are companies like Informed Sources, that do the leg work for the oil companies when it comes to petrol price fluctuations.

“They provide updates to the companies every 15 minutes,” the professor said.

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 service stations, or the pricing information held by Informed Sources is also made available to motorists,” Prof Zumbo said.

“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 minuscule in the scheme of things.”

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