Petrol prices competitive but inherently crazy | Stuff.co.nz

In common with airlines, petrol retailers must clear their inventory. They know that competing retailers face the same pressure. The competition becomes ruinous because each wants to get in first so there is a downward price spiral. Rather than wait for another retailer to cut prices, you cut them first to snap up what car petrol tanks are left to fill. Get your retaliation in first.

Despite regular price wars, suspicions linger that petrol prices are uncompetitive. New entry must be easy enough if Gull can set up profitably on both sides of the Tasman.

Is there a petrol cartel? The history of cartels is the history of double-crossing. The best place in a cartel is outside selling as much as you can at just below the cartel’s higher price. Remember that maxim every time an allegation of collusion is made. Cartels are about price-fixing, stable prices.

They have enough trouble policing secret price cheating, much less weekly price wars. The 2nd law of economics is there is always someone who will cheat on the agreement.

The cartels enforced by governments before airline deregulation were notorious for non-price competition. Too many flights per route, elaborate in-flight service, gourmet meals and every other form of gold plating they could conjure up to undercut the cartel price and win market share.

Petrol retailing is ripe for unlimited non-price competition. Petrol can be the loss leader to win convenience store customers. My local shops has a 24/7 Z convenience extravaganza and a New World petrol station that shuts mid-evening. They are in different markets, not the same cartel.

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Petrol prices competitive but inherently crazy | Stuff.co.nz.