New Zealand Petrol Market

Petrol Price , How Fair and Competitive is it?

I refer to the Ministry of Economic Development (MED)report prepared by Hale & Twomey (July 2008) and would like address the two most important conclusions::
1- The price of petrol (in New Zealand) is fair and competitive!
2- Contrary to consumer perceptions,retail prices go down as quickly as they go up (with international changes in crude oil and product prices).
The question that I like to ask is "what is a fair and competitive price"? In my opinion, a fair price is the price of a commodity that attains its optimum value (in an open market where many sellers exist) compared to other products of similar quality.
There is no denial that the New Zealand oil products’ market is mainly run by the Major Oil Companies (in a production and distribution sharing arrangement) and as such, there is no real price competition in the market. The only competition that exists is that for (retail market share) and that is done (not through price discounting) but rather through good house keeping by each company. As long as retail price on “Service Stations’ Boards” is practically uniform, then competition does not exist. No single party is ready to “lose money” but gain nothing in terms of market share (as all the others will have to follow his price example or else lose their customers)
As long as the cost element of all the major companies is roughly the same, by the fact that they own and share all the existing oil facilities (except service stations), then they have no real incentive to deviate from each other’s pricing policies. This is a fully integrated industry (and there is nothing wrong with that, because it is more efficient and saves money for everybody), the question that needs be answered is does that saving is really reflected on the retail price? To answer this question,we need to investigate the "importer margin" and review (MED)'s price monitoring system.
Obviously the government knew very well that the industry is fully controlled by the majors and have in fact tried to break this in 1998 when Max Bradford was the Minister of Commerce; Gull and Challenge were introduced to the market. As we know, "Challenge" experiment was quickly challenged by Caltex and taken-out of a "newly born" competition system (with the blessing of the Commerce Commission!). Gull had partial success but sooner felt in-line (with the major oil pricing policies) to safeguard the market share (less than 5%) it initially managed to gain (through aggressive price discounting).
The Government price monitoring system has been successful to deter the majors from excessive exploitation of its semi-monopolistic position, but had failed to address the basic issue that prices are being imposed and major oil profits (overall) are in excess of what should be under true competitive environment.
Regarding the issue of price rises and falls, I believe that curves only show the trends (over time) but not the true picture (on daily basis) because you only need to advance the sequence by a short period of say two days and delay it by the same period to gain considerable amount of profit. I also think that (MED)’s one week time lag is not enough (as a correction) especially in a rising market, a product you buy today and sell to retail after say three weeks later will increase in value equals to the price differential within that period. Also allowing for storage etc., a well organized company can make a lot of money as a result of price fluctuations.
What needs be done (in the immediate future) is steps by Government to make the “Independents” really independent by transferring the ownership of service stations' storage facilities to the owner of the service station and truly address the issue of facilitating sea import terminals and storage tanks (for petrol and diesel) for the (independents and others) to import products collectively and directly. I have many other points about the import margin which I hope I will cover in a separate article.