Car Care Products

With the dramatic fall in oil prices and the GFC why haven’t we seen petrol prices at the pump decreased further – are we being ripped off?

So why and how? It is simple really once, you know the games that can be played by the big oil companies along with Coles and Woolworths.

At the retail level artificially inflated prices can occur in two basic ways. First, there is the practice of geographic price discrimination. This is where, for example, the same oil company charges one price for unleaded petrol in town A and a higher price for the same petrol in town B.

Why the higher price at some locations and lower prices at other locations? Quite simply it is because the oil company can get away with the higher prices at those locations where there is little or no competition. At these higher priced locations there is simply no incentive for the oil company to lower its prices. Motorists simply have to pay a higher price than they would have if there had been independents in the local market.

Clearly, geographic price discrimination serves two purposes. To begin with, it allows the oil companies and Coles and Woolworths to gouge motorists in those locations where there is no competition from independents. This gouging is nothing more than profiteering as the failure of competition in the local market means that consumers are being forced to pay much more than they would have if the local market had been competitive.

The profiteering gets larger as local competition fails in more and more areas. Conveniently for the oil companies and Coles and Woolworths the geographic price discrimination can facilitate the destruction of local competition as the practice allows independents to be ambushed.

This can occur as the lower prices charged by the oil companies and Coles and Woolworths, where there are independents, can be subsidised by the higher prices in those areas where the big players don’t face any competition from independents.

In this way geographic price discrimination can be used in a predatory manner to target independents through at times below cost pricing with what appears to be, the clear aim of driving those independents out of business. The big players can sustain this below cost pricing against the independents through their higher prices in those areas where independents have already been driven out of the local market.

Sadly for motorists the below cost pricing only lasts as long as the independents do, because once the independents are forced out of the local market prices will go up and up and up.