Competition !

Since the days of the " Silk Road "  caravan route bringing exotic goods for sale in Europe a form of commerce has been in place where merchants compete with each other to attract customers by offering lower prices.   That still exists in the great cities of today.   Shoppers visit shop after shop to inspect the merchandise and compare prices - and usually the sale goes to the merchant prepared to accept a lower profit margin.

Australia is an open economy and we do not have price control.   The government does influence the level of what some services cost by imposing limits, and this is evident where councils have an upper limit on how much they can hike their rates each year, but generally the competition in the market place ensures a form of price stability acceptable to the public.  In today's world, on-line commerce is locked in a price battle with the bricks and mortar stores.

One commodity stands out in how we accept the price on offer - and that is the petrol we need to operate our cars.  War in the Middle East, the invention of " fracking " to access more oil from old oil fields, the development of ethanol from grain and the processing of oil from tar sands in Canada has created price turmoil.   From over a hundred dollars a barrel, crude has slumped to thirty dollars recently, and we expect the price at the bowser to be lower accordingly.

The Australian Competition and Consumer Commission ( ACCC ) keeps track of petrol prices and it has revealed that the profit margin of Sydney resellers averages fourteen cents a litre and that is six cents higher than enjoyed by resellers in Melbourne.   This has resulted in outrage - and claims that Sydney motorists are being " ripped off ".

The oil industry is dominated by a handful of major companies which not only get crude out of the ground but also own the giant refineries that turn it into petrol, and we are fast losing the ability to perform this function in Australia.   Refining is the choke point at which the price is set and once again there is no form of price control to reign in excess.

A long time ago it seemed that there was a petrol station on almost every corner in Australia.  In the 1950's the oil companies fought for market share and constantly opened new outlets featuring brands that have long disappeared.  These were leased to operators who usually also provided mechanical services.

Today, that number has dwindled and the vast majority of outlets are more of the Seven Eleven type which offers no mechanical services and simply sells petrol as general merchandise.  They are a mix of oil company owned and independent petrol resellers - and offer motorists an ever changing range of prices.   We are told that this is the " discount cycle " and that there are usually cheaper days of the week to fill the car's tank.   In country areas, smaller reseller numbers charge higher prices because of lower sales volumes and consequent higher business costs.

In Australia's major cities the petrol market is slewed by two giant grocery chains which own their reseller outlets and offer discounts to those who shop for groceries in their supermarkets.  Because they have captured a major share of retail petrol sales the price they choose to charge becomes the base for independent outlets - and it seems that in Sydney they have chosen a higher profit margin than in Melbourne.

The independents price range varies wildly and some people think that this is influenced by " additives " such as paint thinner and solvents that are not as heavily taxed as petrol, used to " pad " the product and increase the profit margin - or allow a more attractive retail price.   We now have a mix of independent transport firms who buy from the oil company terminals and negotiate petrol supply to independent outlets.   Once again, their profit margins also vary widely.

No doubt the ACCC will probe deeply and look for the emergence of cartels engaged in price fixing and it does seem suspicious that retail prices have a habit of simultaneously  increasing in tandem across the city without a clear reason, but as any canny motorist knows - there are always outlets where petrol is substantially cheaper than offered by competitors.   Choosing wisely and within the discount cycle brings it's own price rewards !