The Electric New Paper :
ARE PETROL PRICES BEING FIXED CARTEL-LIKE?
Oil firms say no, but Case says...
We don't buy that
IT has happened so often that it's become a routine news item with
hardly anyone raising a brow. The news item usually goes like this:
ABC yesterday announced that it will adjust its pump prices upwards
by X cents. CDF, GHI and JKL said they, too, will follow
suit...
By Woon Wui Tek
22 April 2007
IT has happened so often that it's become a routine news item with
hardly anyone raising a brow.
The news item usually goes like this: ABC yesterday announced that
it will adjust its pump prices upwards by X cents. CDF, GHI and JKL
said they, too, will follow suit...
It happened again on Monday. Within hours of each other, the four
petrol companies in Singapore - First Shell, then Singapore
Petroleum Company (SPC), ExxonMobil and lastly Chevron - each
revised its prices.
The retail price of petrol and diesel rose by 10 cents.
Coincidence? Not when it happens almost every time there is a price
adjustment.
What is it then?
Petrol companies have in the past weathered accusations of
price-fixing. Nothing new there. But, with the Competition Act in
full swing now, should there be a re-look at the petrol companies'
pricing behaviour?
Price-fixing is not allowed under the Competition Act, which kicked
in last year. And recently, the Singapore Medical Association (SMA)
scrapped its fee guidelines - which set the range of prices that
doctors could charge.
The SMA was concerned that the guidelines - first introduced 20
years ago to prevent overcharging - might be construed as a form of
price-fixing.
Competition Commission of Singapore (CCS) chief Lam Chuan Leong
told the press that guidelines 'stifle market forces and harm
consumers by reducing choice'.
Well, should CCS then look into petrol prices, which are almost the
same across the board and can seem to move in unison?
ALARM BELLS
To the Consumers Association of Singapore (Case), the recent price
adjustment has set off alarm bells.
Executive director Seah Seng Choon said that Case planned to write
to the CCS.
Mr Seah said: 'We have made representations to the CCS before in
previous price adjustments, and the CCS has felt that the petrol
companies did not collude and individually made their own
decisions.
'We don't buy that.'
Noting how the most recent hikes came all on the same day, he said
he was concerned that this indicated an 'anti-competitive
environment, with petrol prices being about the same'.
But when The New Paper contacted the CCS, its response on petrol
pricing was terse.
NO CARTEL
First, there are markets in which we simply should not expect
prices to vary widely from seller to seller: That is, as with
petrol, where the products offered by various sellers are extremely
similar.
'Undifferentiated products would tend to have similar
market-clearing prices,' a CCS spokesman said.
Second, on same-day price adjustments, 'a seeming co-relation in
the movement of prices does not prove the existence of a
cartel'.
A cartel, the CCS spokesman said, is where 'businesses come
together to fix or co-ordinate prices to support a price
level'.
Such price-fixing would lead to intervention by the CCS.
And this is why fee guidelines - in keeping individual doctors from
setting their own prices - 'harm competition, and are detrimental
to consumer welfare'.
Even Mr Seah of Case acknowledges that 'we have no evidence' of
collusion in the petrol market.
Indeed, there have been cases in which an oil company raises its
price, only to retract it after its competitors did not follow
suit.
'This has happened at least twice with ExxonMobil,' said oil
industry consultant Ong Eng Tong.
ExxonMobil is the market leader, with 74 Esso and Mobil
stations.
When contacted, industry observers and players pointed to other
reasons for the lack of price competition.
First, Singapore is a small market and the costs for each chain is
about the same, noted Mr Ng Weng Hoong, editor of energy news
website EnergyAsia.com.
PRICE VARIATIONS
This is unlike in bigger markets, where land costs, for instance,
might be different from area to area, and so lead to price
variations.
Also, Mr Ong said that the petrol companies here depend on each
other for supply.
SPC does not even have its own gasoline depot, he noted,
and relies on Chevron, which owns the Caltex chain.
In Mr Ng's graphic terms: 'There is no incentive for anyone to
slice anyone else's throat.'
But what about the way in which prices generally move in
step?
Well, it could be argued that, as ExxonMobil communications manager
Eva Ho put it, 'it was precisely because of competition and market
forces that prices move the way they do'.
Take the case of a few provision shops, near each other, selling
the same product, say a soft drink.
If costs went up, any one shop would be reluctant to raise prices,
since customers might abandon it for its competitors.
But if one shop did raise its price, the others are likely to feel
safe in following suit.
The recent petrol price hike comes on the back of higher global oil
prices.
Shell, which has 67 stations, also characterised the petrol market
as 'a highly competitive market'.
Ms Mavis Kuek, its general manager for external affairs &
communications, said that 'decisions to adjust retail pump prices
have always been in response to market conditions such as movements
in internationally-traded finished product prices'.
DISCOUNTS
At the retail level, competition comes more in the form of
discounts and loyalty programmes, though Mr Ong noted that this
meant the actual cost to the consumer was 'not transparent'.
A spokesman for SPC, which has 39 stations here, said its pump
prices were adjusted 'from time to time to reflect prevailing
market conditions'.
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