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Petrol Price Cycles

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  • David P. Byrne

Abstract

I never owned a car as a student. If I had to go somewhere, I walked or took public transport. I paid little attention to petrol prices because they did not affect my weekly budget. However, if you talk to someone who owns a car or drives to work, you will likely find they pay attention to prices at the pump.They may tell you which are the cheap petrol stations in their market, what the cheap day of the week for buying petrol is, or express concern that petrol prices rise around weekends and holidays.Consumers’ interest in petrol prices is likely driven by three facts: (1) petrol prices are displayed on large signs, making them highly visible; (2) in the short-run, consumers are unable to substitute from petrol to other fuels or modes of transportation when petrol prices rise; and (3) consumers spend a large share of their income on petrol. In 2009, the average Australian spent $51.02 per week on petrol, or 4.1% of their total weekly expenditures (ACCC 2011). Moreover, petrol is a relatively homogeneous good, which leaves consumers questioning why its price varies so much over time and across stations. Given the impact petrol costs have on consumers’ budgets, the Australian Competition and Consumer Commission (ACCC) monitors competition in Australian petrol markets. In fact, the ACCC has an entire branch solely dedicated to petrol markets! A striking finding the ACCC has documented for at least the past five years is that petrol price cycles exist in Australian cities. Figure 1, taken from an ACCC (2010) monitoring report, illustrates petrol price cycles for Adelaide, Brisbane, Melbourne, Perth, and Sydney. In these cities, the average daily petrol price drastically increases once a week (“price restorations”), followed by a sequence of daily price decreases (the “undercutting phase”), until the next price restoration occurs.1 To the extent that drivers purchase petrol from different stations at different parts of the cycle, petrol price cycles may explain why consu
(This abstract was borrowed from another version of this item.)

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  • David P. Byrne, 2012. "Petrol Price Cycles," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 45(4), pages 497-506, December.
    • Handle: RePEc:bla:ausecr:v:45:y:2012:i:4:p:497-506
    DOI: j.1467-8462.2012.00702.x
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    2. Haucap, Justus & Heimeshoff, Ulrich & Siekmann, Manuel, 2016. "Selling gasoline as a by-product: The impact of market structure on local prices," DICE Discussion Papers 240, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Oczkowski, Edward & Wong, Alfred & Sharma, Kishor, 2018. "The impact of major fuel retailers on regional New South Wales petrol prices," Economic Analysis and Policy, Elsevier, vol. 57(C), pages 44-59.
    4. Justus Haucap & Ulrich Heimeshoff & Manuel Siekmann, 2017. "Fuel Prices and Station Heterogeneity on Retail Gasoline Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    5. Arezoo Ghazanfari & Armin Razmjoo, 2022. "The Effect of Market Isolation on Competitive Behavior in Retail Petrol Markets," Sustainability, MDPI, vol. 14(13), pages 1-33, July.
    6. Haucap, Justus & Heimeshoff, Ulrich & Siekmann, Manuel, 2015. "Price dispersion and station heterogeneity on German retail gasoline markets," DICE Discussion Papers 171, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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