How unspoken collusion fixed petrol prices

A study of 15 years of unleaded petrol prices in Perth has revealed unspoken collusion by fuel companies, to coordinate prices, soften competition, and enhance retail margins.

Researchers investigated data across 771 petrol stations in Perth’s metropolitan area, using data from Western Australia’s price transparency program, Fuelwatch, between January 2001 and December 2015.

Overall, the researchers investigated more than 1.7 million different retail petrol prices, covering a period of a decade and a half.

“The granularity of these data, and the length of time they span, has permitted us to research the evolution of oligopoly pricing,” said the working paper’s co-author Associate Professor Nicolas de Roos, of the University of Sydney’s School of Economics.

The researchers’ working paper makes it clear that their findings do not suggest firms are engaged in explicit collusion.

The investigation by Associate Professor de Roos and Dr David Byrne from the University of Melbourne details evidence that a market-leading fuel firm’s price experiments ‘communicated’ its pricing plan to rivals. Through trial and error, these prices were subsequently understood and adopted by rivals.

What did this mean for motorists?

“The collusive pricing structure is a simple one: prices jumped by 15 to 20 cent per litre every Thursday and were subsequently reduced by two cent per litre each following day until the cycle repeated itself the following Thursday,” said Associate Professor de Roos.

The findings have two important ramifications for collusion and antitrust policy: one is a warning, the other, a solution.

What are the policy implications?

“Our findings suggest future mergers resulting in mega firms could create the conditions for greater price leadership and experimentation, facilitating possible collusion,” said Associate Professor de Roos.

“Our study also highlights the enormous potential for antitrust authorities to use data, as we have, to monitor for collusion in similar retail markets. With such data, collusion around prices can be monitored, identified, and addressed,” he said.

The study has been highlighted in an opinion piece by University of Sydney alumnus and Shadow Federal Minister for Competition and Productivity, Dr Andrew Leigh.