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Economic, Education, Jobs and Skills Committee of the Parliament of Victoria

Inquiry into fuel prices in regional Victoria

SUBMISSION BY

September 2017

EEJSC Submission No. 29Received 22 September 2017

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Informed Sources (Australia) Pty Ltd

PO Box 1563

Toowong DC QLD 4066

AUSTRALIA

Ph: +61 7 3858 0000

Fax: +61 7 3858 0010

Contact: Nick Ferris

www.informedsources.com

Inquiry into fuel prices in regional Victoria Page: i

At a glance

8 out of 30 regional Victorian towns (25%) analysed for this submission had an

average ULP price lower than Melbourne, these towns were between 0.2 cents per

litre and 4.3 cents per litre lower than Melbourne (period analysed: 1/01/15-

31/08/17).

22 out of 30 regional Victorian towns analysed for this submission had an average

ULP price higher than Melbourne, these towns were between 0.6 cents per litre and

9.6 cents per litre higher than Melbourne (period analysed: 1/01/15- 31/08/17).

Petrol prices in Melbourne respond quickly to changes in international prices and

taxes; regional towns also follow changes in international prices and taxes but there

are varying lags in the time to respond to these prices.

Differences in prices between towns are due to differences in operating and capital

costs, fuel throughput, non-fuel income (such as convenience stores), freight costs

and local competition.

Fuel prices are already very transparent through the internet (including websites

and social media), smartphone apps, price boards, local print and electronic media.

Regulated fuel price transparency schemes increase fuel prices as evidenced in

NSW, WA and overseas where governments have introduced such legislation.

Regulated transparency also kills innovation in this emerging space.

In NSW where the government introduced a regulated scheme, the gap between

the Sydney average ULP fuel price and the average regional ULP fuel price has

increased by 1 cent per litre since the implementation of FuelCheck in August 2016.

As Sydney prices have not reduced (benchmarked against TGP), this demonstrates

that regional prices have increased by 1 cent per litre in real terms since the

introduction of FuelCheck.

According to the ACCC, “competition is the best way to create lower prices for

motorists”. Therefore, policies and initiatives to encourage new market entrants at

a local level is considered to be the most effective method of reducing fuel prices.

Inquiry into fuel prices in regional Victoria Page: ii

Executive Summary

Introduction

Informed Sources’ expertise relevant to this inquiry is in the collection, packaging

and reporting of retail fuel price information. Our 30-year experience with the fuel

industry and motorists also provides us with insights into the determinants of fuel

prices and potential means to reduce them in regional Victoria.

Accordingly, our submission is focussed on those terms of reference where we

believe we can most assist the committee. Other areas, such as the impact of fuel

prices on communities and business, will no doubt be addressed in detail by other

submissions.

Understanding fuel prices depends on careful collection and analysis of pricing data.

This submission presents data objectively as Informed Sources is an independent

data provider and not a direct participant in fuel retailing.

Fuel price differences and determinants

There are differences in fuel prices between Melbourne and regional towns and

differences between individual regional towns.

In Melbourne, fuel prices tend to move frequently whereas prices in regional towns

tend to move less frequently.

Differences in retail fuel prices are due to differences in costs, the level of

competition in particular locations and lags in the response of retail prices in

particular towns to changes in wholesale prices.

Cost differences between locations may arise from the volume of fuel sales, level of

convenience sales, other non-fuel income, operating and capital costs and freight

costs.

Differences in competition arise from market structure and the pricing strategies of

individual operators. Prices are likely to be lower where there are strong

independents operating in the local market.

Fuel price transparency

Information on retail prices is important so consumers are informed about the level

of prices and can modify their behaviour. Price is however, only one part of the

complex mix of influencers that determines where a motorist will buy.

There is already a significant amount of fuel pricing information freely available to

consumers in Victoria covering metropolitan and regional areas from private data

providers such as MotorMouth, GasBuddy, Compare the Market and others.

The provision of pricing data by all retailers to the government has been legislated

in WA and NSW and proposed for the NT. The information is then provided to

consumers via websites and smart phone apps. However, such regulation has been

shown in recent studies to increase pump prices.

These government initiatives are costly to implement/operate and duplicates the

information provided by private data providers.

Inquiry into fuel prices in regional Victoria Page: iii

A recent influential paper presented to the OECD has examined regulated

mandatory fuel price reporting schemes in Chile, Germany and Western Australia

and found that these schemes were responsible for increasing pump prices. The

paper presented to the OECD was released after the NSW FuelCheck scheme was

launched meaning the NSW Government would not have been aware of the effect

these schemes have on increasing retail fuel prices. Trends are emerging in NSW

which are consistent with findings from the OECD report.

FuelCheck in NSW has been poorly designed and implemented. In addition to not

being successful at putting downward pressure on fuel prices and not encouraging

the sale of more ethanol blended fuel, some issues to arise include:

o Systemic misreporting of prices by retailers made worse by an inadequate

compliance program;

o Lack of technical support to manage system failures – 2 major system

failures within 8 months. One of these events caused a pricing anomaly

across Western Sydney;

o Misrepresentation of scheme usage by Fair Trading; and

o Retailers and site operators use FuelCheck almost as much as consumers.

Despite mandatory price reporting schemes costing motorists more at the pump, it

appears that motoring clubs in Australia are advocating for these schemes simply

so they can obtain access to fuel pricing information free of charge rather than

paying private data providers commercial rates that are a fraction of government

scheme implementation costs.

Suggestions for action

Regulation often comes with unintended consequences (such as increasing pump

prices) and adds to operator costs which must eventually be passed on to the

motorists. Regulation is no substitute for effective action.

The Victorian Government and the ACCC should further promote existing fuel pricing

apps and websites to assist consumer awareness of these free services.

There is an extended role for the ACCC to play including the development of a

regional town benchmark price which considers non-price factors/varying costs.

Victorian government should implement policies and initiatives to encourage new

market participants where there is low competitive intensity / high prices in regional

centres.

The Victorian Government should encourage local community groups to play an

active role in monitoring fuel prices and communicating good deals on fuel

throughout their local communities. Perhaps forming buying groups or similar.

In towns where fuel pricing data is not readily available, for a fraction of the cost to

implement and manage fuel price transparency regulation across the whole State,

the Victorian Government should consider subsidising the collection of fuel prices

which could be then made freely available to the public via platforms such as

MotorMouth. This was successfully implemented by the Tasmanian Government

some time ago and again more recently.

Inquiry into fuel prices in regional Victoria Page: iv

Table of Contents

Introduction .......................................................................................................... 1

Inquiry Terms of Reference ..................................................................................... 1

1. Pricing Methodology for Unleaded, Diesel and LPG fuels in regional Victoria ............... 2

Market Structure ................................................................................................ 2

Consumer behaviour and preferences .................................................................... 3

Fuel Price Components ........................................................................................ 5

2. Why pricing discrepancies occur between different geographic locations ................... 6

Discrepancy Overview ......................................................................................... 6

Regional Victorian fuel prices benchmarked against Terminal Gate Prices and Melbourne

........................................................................................................................ 7

3. Best practice initiatives in other Australian States and Territories that reduce fuel

prices ................................................................................................................. 10

New South Wales .............................................................................................. 10

Western Australia ............................................................................................. 11

Northern Territory ............................................................................................. 12

All Australian States and Territories .................................................................... 12

MotorMouth – A National Fuel Pricing Service .................................................... 13

Fuel Pricing Information and Consumer Behaviour ................................................ 13

4. Technology and tools that may enable motorists to compare fuel prices.................. 16

MotorMouth App and MotorMouth Website ........................................................... 16

6. Regulatory and legislative barriers that may influence fuel prices ........................... 18

Ideas ................................................................................................................. 21

About Informed Sources ....................................................................................... 22

Inquiry into fuel prices in regional Victoria Page: 1

Introduction

Informed Sources (Australia) Pty Ltd is pleased to provide this submission on regional

Victorian fuel prices to the Economic, Education, Jobs and Skills Committee of the

Parliament of Victoria.

Informed Sources operates Australia’s leading fuel price monitoring services and has done

so for 30 years. We make our fuel pricing data available to fuel retailers, government

agencies including the ACCC, other third parties such as state motoring clubs (including

RACV) as well as direct to motorists through our fully owned subsidiary, MotorMouth.

Our expertise relevant to this inquiry and specifically the inquiry’s Terms of Reference

(TOR) is in the collection and dissemination of information on fuel prices. Our experience

with supporting the retail fuel industry and consumers also provides insights into the

determinants of fuel prices and potential means to reduce them in regional Victoria.

Accordingly, our submission is focussed on those TOR where we believe we can most assist

the committee. We will therefore not respond to other areas from the TOR such as the

impact of fuel prices on communities and business and leave to those more qualified to

comment on this area.

Inquiry Terms of Reference

1. examining pricing methodology

for unleaded, diesel and LPG fuels in

regional Victoria

See pages 2 - 5

2. examination of why significant

pricing discrepancies occur in some

regional communities when

compared to metropolitan areas and

many other regional communities

See pages 6 - 9

3. consideration of best practice

approaches and initiatives in other

Australian states and territories, with

a view of reducing fuel prices

See pages 10 - 15

4. examining technology and tools

that may enable motorists to

compare fuel prices

See pages 16 - 17

5. considering the experience and

pricing impact upon families,

businesses and industry

Not responded to in this submission

6. examining regulatory and

legislative barriers that may

influence fuel prices

See pages 18 - 20


1. Pricing Methodology for Unleaded, Diesel and LPG

fuels in regional Victoria

Market Structure

Examination of pricing methodology requires some understanding of market structure.

Supply chains and associated pricing contracts vary between competitors; cost structures

and marketing objectives also vary.

The following table summarises site numbers by brand in regional Victoria (all of Victoria

excluding Melbourne) and Melbourne. This data is from Informed Sources’ proprietary

NetWatch database which is used by subscribers for a variety of commercial purposes

including network planning by petrol retailers. Brand share does not equate to volume

share or share of price control.

BrandRegional Victoria

Site Count

% of

Market

Melbourne Site

Count

% of

Market

7 Eleven 0 0% 151 17%

BP 144 23% 146 17%

Caltex 160 25% 98 11%

Caltex/Woolworths 52 8% 96 11%

Coles Express 42 7% 155 18%

Independent 49 8% 81 9%

Minor Branded 38 6% 35 4%

Mobil 56 9% 1 0%

Shell 42 7% 7 1%

United 56 9% 97 11%

Total Site Count 639 867

Table 1: Victorian brand share by Site Number

The brand share data above provides some insight into which brands may have greater

influence over markets but not how they influence prices.

Supermarket-branded sites (Woolworths and Coles Express) are company-operated and

priced by the respective companies. Caltex and BP have some company operated sites as

well as many commission agent sites at which the companies can directly control prices.

However, they also have a large number of independently-owned/dealer operated, branded

sites at which the individual site owner sets the prices and purchases wholesale fuel.

Other, well-established brands such as United, 7-Eleven, APCO and Liberty may have

company-operated, franchised or independently-operated service stations with a variety

of operating models for pricing sites. Service stations may also be owned by distributors,

rather than being individually owned, which adds a layer of complexity.

The diversity of pricing and ownership models means that service stations need to be

examined individually and in their local competitive context to understand how they

operate and how prices are set at the retail level.


Consumer behaviour and preferences

Whilst petrol prices receive significant media attention particularly when prices are high,

our own MotorMouth usage data indicates that the ‘market’ for this data for people who

pro-actively compare prices is relatively small - a few percent of the total motorist

population. (Given the commercial sensitivity of this claim, Informed Sources would be

prepared to support this statement within a confidential/closed hearing).

A search of the Victorian Parliamentary Hansard was also undertaken for the past few years

to examine any references to petrol and apart from the debate relating to the

establishment of this inquiry, no other mentions were found that relate to fuel pricing

suggesting that fuel prices in Victoria are a marginal issue at best.

Low consumer interest in fuel prices is likely explained by the comparatively low prices

Australian’s pay for fuel on world standards with Australia ranked the forth lowest of the

thirty-three OECD economies compared.1

Figure 1: Automotive Gasoline Prices and Taxes in OECD countries – March 2017 Quarter

1 Department of the Environment and Energy, Australian Petroleum Statistics: March

2017 Quarter, http://www.environment.gov.au/system/files/resources/08464198-e56c-

4f99-a8df-5195573493a1/files/australian-petroleum-statistics-june2017.pdf


Interestingly, 60% of motorists purchase their fuel from the same few petrol stations2 and

many do not proactively search for pricing information when purchasing fuel. In fact, our

data and industry data supports that in addition to price, there are a number of factors

motorists take into consideration when purchasing fuel – location and access factors as

well as brand loyalty being important factors in motorists’ minds3. Retailers compete on

much more than just price.

The following summary table from Canstar’s 2017 national survey4 provides an overview

of major brands and their consumer characteristics.

Figure 2: Canstar Petrol & Service Station 2017 Consumer Survey

Looking at the table column “Price of Petrol”, Costco is unsurprisingly rated best on price,

as petrol is essentially a loss-leader to attract customers to its stores. Puma rate highly for

price of petrol, with Caltex, 7-Eleven and United in the middle of the range. BP, Coles

Express, Shell and Woolworths rate lowest. Interestingly, Woolworths is often towards the

bottom of the market suggesting consumer perceptions are not always aligned with reality.

One possible interpretation of the data is that supermarkets, at least in popular perception,

are no longer very competitive on board price and rely on shopper-dockets, which are now

more limited in value than in the past, to provide a competitive net price to consumers.

2 ACAPMA, National Monitor of Fuel Consumer Attitudes 2015 Research Report 3 ACAPMA, National Monitor of Fuel Consumer Attitudes 2015 Research Report 4 Canstar Blue 2017 Petrol & Service Station Consumer Survey,

https://www.canstarblue.com.au/vehicles/fuel/service-stations


The ban on advertising of discounted prices on boards in some states may also have had

an impact on perceptions.

That leaves the smaller chains at the cheaper end of the market. The supermarkets and

oil major brands tend to score higher on non-price factors which is indicative of a

differentiated marketing strategy where price is less important.

Fuel Price Components

In a free market, such as Australia, retailers have the choice to select the price they charge

for their products in accordance with their offer and the execution of their marketing and

sales strategies. With competition present, if petrol retailers price their products too high,

their volumes will suffer. Price too low and their margins will contract.

About 80% of the retail price of fuel is cost of product and taxes 5 , which leaves

approximately 20% to cover retailers’ operating overheads and any profit. In national

markets where there are strong competitive forces, this makes the task of delivering an

acceptable return on investment challenging for retailers which is why Australia has seen

the retreat of a number of integrated oil companies in recent years from retailing fuel

(ExxonMobil and Shell), and the emergence of new market participants who can secure

sales to maximise returns from their trading operations upstream (Trafigura/Puma and

Vitol/VIVA).

Service stations in a regional area (or any location) face widely varying costs. For example,

operating costs: one service station may be family-run and prepared to accept lower wages

(as owners) than a competitor with employees at award rates; another site might be old

and have high repair and maintenance costs; another might have a large convenience store

to spread its overheads with fuel sales.

Capital costs may also vary greatly. For example, a new site costing several million dollars

requires a higher return on investment compared to an old site with written-down assets;

another old site may have replaced its fuel storage tanks for environmental reasons and

require higher prices to pay for this capital improvement; and land values can vary greatly

by location.

5 Australian Institute of Petroleum, Facts about the Australian retail Fuel Market & Prices:

http://www.aip.com.au/pricing/facts/Facts About the Australian Retail Fuels Market a

nd Prices.htm


2. Why pricing discrepancies occur between different

geographic locations

Discrepancy Overview

The ACCC explains regional fuel prices as follows:

Petrol prices in regional Australia change more slowly than in the five largest cities—both

up and down—because retailers in many regional areas tend to have lower stock turnover

than city sites. Regional prices tend to be more stable than prices in the five largest capital

cities, which generally move in cycles.

Fuel prices are generally higher in regional Australia due to:

lower population and demand resulting in fewer outlets, leading to less competition;

higher costs for transport and storage of fuel;

less demand for convenience sales like drinks, food and newspapers that can enable

retailers to add to overall profits and keep fuel prices lower;

the location of outlets - whether or not they are on a highway and likely to get a

high number of customers6.

Petrol retailers rarely provide detailed commentary on fuel prices, however Caltex offered

the following in 2015 when responding to Questions on Notice in a 2015 Senate inquiry7

when asked about regional versus capital city prices:

Regional service stations vary greatly in fuel volumes, from volumes similar to larger city

sites to very small. These small volume sites may be sustained by relatively high retail

margins or income streams from other businesses on the site. Some small country sites

may see one fuel tanker (up to 40,000 litres of fuel) making a delivery every 2 to 3 weeks

versus one tanker per day at some city sites. Storage and handling costs may be significant

for some country areas where fuel must be stored in depots and "double handled" rather

than delivered directly from coastal terminals; this adds to distribution costs which must

be passed on to retailers.

Caltex continued by saying that:

… distance (and thereby freight costs) is a factor in higher regional and rural prices but is

generally not a significant factor in explaining town to town differences. Freight is typically

around 1.5 to 4 cents per litre greater for country than city delivery.

Caltex also stated that:

In most markets, costs vary between competitors and there are varying degrees of

interdependence, meaning that the actions of one competitor may influence, and be

influenced by, the independent decisions of other competitors.

6 Australian Competition and Consumer Commission, Fuel in Regional Australia,

https://www.accc.gov.au/consumers/petrol-diesel-lpg/fuel-in-regional-australia 7 Commonwealth of Australia, 2015, Senate inquiry into Australia's transport energy

resilience and sustainability, pp. 100-104

http://www.aph.gov.au/Parliamentary Business/Committees/Senate/Rural and Regional

Affairs and Transport/Transport energy resilience/Additional Documents


Geelong 0.7 Wallan 0.8

Hamilton 0.7 Wangaratta 0.7

Horsham 0.7 Warrnambool 0.7

Koo Wee Rup 0.6 Wodonga 0.8

Kyabram 0.6 Yarrawonga 0.7

Leongatha 0.9

Table 2: Correlation between Average retail prices and Melbourne TGP

As noted above, the relationship between the average retail price and TGP is strong,

however it is not perfectly linear suggesting that whilst the wholesale price is a significant

component of the retail price, other elements namely transportation, retail operating costs

and local competition will also play an important role in setting the retail price.

The effect of stickiness and lags also needs to be considered when analysing retail prices

and wholesale prices and why variances can occur between markets. No two markets are

alike.

Lags refer to the amount of time that passes between a shift in the wholesale price and

when that becomes reflected in the retail price. Service stations with lower volumes will

typically have longer lags as it will take longer for these sites to clear “old stock”. In

Melbourne, the lag may only be a few days whereas in regional towns, the lag may be 3

or more weeks.

Stickiness refers more broadly to markets who are likely to move retail prices independent

of input costs. Country towns are likely to be sticky markets10. This is because there may

be little incentive to reduce prices because competitors will also quickly reduce their prices

and the net result is the same volume of petrol sold at each retail site but with lower

margin11.

Stickiness is generally not observed in the largest urban areas because some competitors

can secure permanent increases in site volume by positioning themselves as “price

discounters” or “budget sites”. Sufficient numbers of city motorists are willing to reward

this pricing strategy by shifting their purchases from site to site. Such a discount strategy

is more likely to succeed where there are high traffic flows, hence large potential markets,

and a discount competitor’s action has relatively less impact on other competitors’

volumes. Where such a strategy has a significant volume impact on competitors – as would

be the case in most country towns due to the small number of sites – those competitors

are more likely to react quickly to cut prices and avoid the potential loss of volume.

The lack of “stickiness” in large urban areas tends to increase city-country price differences

when there are large falls in wholesale prices, and decrease the differences when prices

increase. It should also be noted however, that a regional town may have sticky prices and

long lags but nevertheless be competitive and have average prices the same or similar as

Melbourne.

10 Byrne, D 2015, Gasoline Pricing in the Country and the City, p. 30. 11 Australian Competition and Consumer Commission, 2014, Monitoring of the Australian

Petroleum Industry: December 2014, p. 74.


3. Best practice initiatives in other Australian States and

Territories that reduce fuel prices

Throughout different Australian States and Territories, there are a number of approaches

available that aim to reduce fuel prices through increased transparency. The effectiveness

of the different approaches available have historically not been easy to quantify however

in recent times, there have been a number of economic papers released which indicate

that some approaches lead to increasing fuel prices. Simply, government regulated

schemes which include mandatory price reporting by retailers have been shown to cost

consumers through increased fuel prices. Below, we consider the various approaches

available throughout Australia.

New South Wales

Regulation was introduced in NSW in 2016 requiring all service stations to register with the

Department of Fair Trading and from August 2016, all retailers have had to ensure that

current fuel prices are uploaded to Fair Trading’s FuelCheck website in real time. This

information is then provided to consumers on the FuelCheck website and supplied free of

charge to commercial organisations such as the NRMA who use it to attract customers. The

data is also available free of charge to fuel retailers and third parties such as private data

aggregators.

The FuelCheck scheme was designed to promote ethanol blended fuel by making the price

of E10 more visible. This was despite consumers already understanding E10 to be a

cheaper, although less fuel-efficient, grade of petrol.

Recent analysis on Sydney fuel prices by Informed Sources showed that:

1. The gap between E10 and ULP has declined by 0.03 cpl (Oct 15 – June 16: 1.80 cpl

and Oct 16 – June 17: 1.77 cpl); and

2. The E10 Gross Indicative Retail Difference (GIRD) has increased 0.5cpl (Jan – June

16 vs Jan – June 17) and ULP GIRD has not reduced over the same period.

In addition, FuelCheck continues to experience operational and compliance issues and the

hoped-for aims of the scheme (to put downward pressure on prices and increase ethanol

sales), have not materialised.

In regulating that retailers provide consumers with access to real-time fuel prices, the NSW

Government has:

increased costs for motorists as our analysis shows;

duplicated existing private sector fuel information services;

created a new and costly bureaucracy;

increased the red-tape burden for small business (most service stations are small

businesses); and

threatened the existence of some independent retailers who did not wish their prices

to be published to greater risk of attack by larger and stronger competitors.

The regulation was introduced without regulatory assessment or meaningful stakeholder

consultation and without consideration of the anti-competitive aspects of price

transparency, specifically regulated schemes.

Lack of consultation and effective implementation has seen a number of issues arise,

including:

Systemic misreporting of prices by retailers made worse by inadequate compliance

program;


Lack of technical support to manage system failures – 2 major system failures within

8 months. One of these events caused a pricing anomaly across Western Sydney;

Misrepresentation of scheme usage by Fair Trading;

Retailers and site operators use FuelCheck almost as much as consumers.

One of the reasons advanced by the government for regulation was that existing data

services were incomplete. In particular, pricing information for Coles Express and United

were not widely available.

In recent times, Coles Express prices have tended to be higher than the average and their

customers typically buy fuel because of convenience, the Coles loyalty program or the Shell

brand. Any motorist who is conscious of prices would quickly realise that Coles Express is

not a “discount” brand so customers looking for discounted fuel would probably look for

other sites. United is well known as a discounter although not at the lowest end of the

market, so would be expected to sit near or below the average price.

Most of the market however is covered free of charge to consumers by existing services

and this information, which shows individual sites and area maps, provides benchmark

information by which prices can be assessed. With motorists knowing what is happening

across the majority of the market, if they pass a price that is not displayed on MotorMouth

or another app, they know immediately whether or not it is a good deal.

In summary, the need for “comprehensiveness” is a very weak justification for regulation,

and the costs of regulation outweigh any benefit.

The ineffectiveness of FuelCheck is explained further by its usage and the fact that it

effectively duplicates existing information. There are on average about 170,000 hits per

month on the FuelCheck website, a rate of about 2 million per year. This sounds impressive

until the annual number of fuel purchases in NSW is considered. There are about 5.5 million

vehicles on NSW roads12 consuming about 10 billion litres of fuel per year13; at an assumed

average fill of 50 litres that equates to about 200 million fills per year.

FuelCheck is therefore used on the surface by only 1 per cent of fills. This percentage

however, overstates the scheme’s usefulness because retailers and site operators are also

heavy users of the FuelCheck scheme for monitoring their competitors’ prices. Informed

Sources estimates the split of consumer vs commercial usage of FuelCheck to be in the

order of 60 / 40 suggesting that the scheme attracts about 100,000 sessions per month

from actual consumers or only 20,000 to 25,000 consumers (unique users) when

considering users will likely log 4 to 5 sessions per month. This is an expensive service for

the NSW Government to operate for a very small proportion of the population.

Western Australia

Western Australia introduced regulation in 2001 that requires all fuel retailers in the Perth

area and the majority of regional WA to provide by 2 pm each day, the prices at which

they will sell fuel for 24 hours starting 6am the following day. These prices are available

12 Australian Bureau of Statistics, 2015, Motor Vehicle Census, cat no.9309.0,

http://www.abs.gov.au/AUSSTATS/[email protected]/Lookup/9309.0Main+Features131%20Jan%

202015?OpenDocument 13 Department of the Environment and Energy, Australian Petroleum Statistics: Table 3b.

Sales of Petroleum products by state marketing area, March 2017 Quarter,

http://www.environment.gov.au/system/files/resources/08464198-e56c-4f99-a8df-

5195573493a1/files/australian-petroleum-statistics-june2017.pdf


from 2.30pm on the government website. Fuel must be sold at the posted price; variation

in price or discounting is illegal.

A 2017 study by economist Ariel Ezrachi (Professor of Competition Law at Oxford

University) presented to the OECD Competition Committee in June, found that FuelWatch

facilitated practices which created price stability, enabled firms to resolve conflict quickly

and resulted in significantly higher prices for motorists. The abstract for the paper states:

We show how price leaders can use price experiments to tacitly communicate collusive

intentions, resolve strategic uncertainty, and create mutual understanding among rivals

over a collusive strategy. 14

In a summary of the conclusions in an article in The Conversation, Byrne says:

New analysis of retailers in Perth over a period of five years [2010-2015] shows this

inflated the price motorists are paying to fill up their tanks, and retailers are making

50% higher profit margins as a result...15

Clearly, the process of tacit collusion examined by Byrne and de Roos benefits enormously

from FuelWatch price regulation: communication and tracking of prices is formalised by

government mandate, and stability of the coordinated pricing behaviour is underpinned by

the ban on discounting. It is ironic that a scheme that was intended (albeit mistakenly) to

benefit consumers has ended up facilitating tacit collusion that results in increased pump

prices.

Northern Territory

The Northern Territory is currently considering the implementation of a government

regulated fuel price reporting scheme.

If it proceeds, the NT Government would:

not lower fuel prices;

duplicate services already provided free by the private sector;

impose substantial costs on government and taxpayers;

increase red tape costs for retail fuel businesses.

Informed Sources has suggested to the NT Government that whilst such a scheme is not

necessary and will be to the detriment of NT motorists, should it wish to still proceed,

Informed Sources/MotorMouth could provide all the infrastructure for a regulated scheme

and operate the scheme on behalf of the government reaping a potential saving to the

government of $2.3 million over three years.

All Australian States and Territories

In addition to the abovementioned government regulated schemes operating in Western

Australia and New South Wales, all Australian States and Territories access fuel pricing

information from private data sources. Across Australia, there is a significant amount of

reliable fuel pricing information available to motorists free of charge. Sources of

information include:

14 Byrne and de Roos, 2017, Learning to Coordinate: A Study in Retail Gasoline,

http://dx.doi.org/10.2139/ssrn.2570637 15 Byrne, D 2017, New research shows how petrol retailers pushed prices up in Perth,

The Conversation, http://theconversation.com/new-research-shows-how-petrol-retailers-

pushed-prices-up-in-perth-72792


Third party apps and websites including MotorMouth and Compare the Market;

Motoring clubs including the RACV;

Fuel retailer apps such Woolworths Fuel and 7-Eleven;

Media – radio, television and print;

Fuel retailer price boards.

With the emergence of academic research indicating that government regulated mandatory

fuel price reporting schemes facilitate tacit collusion16, remove retailer uncertainty and

increase pump prices, services provided by private data providers including MotorMouth

are superior in our view because these services do not have every fuel price for every

service station. Instead, services offered by private data providers such as MotorMouth

have fuel prices for most service stations, operate very reliably and achieve the right

balance by giving consumers access to sufficient information whilst not providing retailers

with all information. Less than 100% coverage ensures a degree of uncertainty exists in

the market with retailers constantly alert to the fact that lower prices may be available

from competitors (keeps retailers on their toes).

MotorMouth – A National Fuel Pricing Service

The independently run MotorMouth service operating since 2000 publishes the fuel prices

of many retailers in near real time across Australia - up to 90% coverage in many locations

across Australia.

MotorMouth fuel pricing data is sourced:

Electronically, from participating fuel retailers;

Directly from service station site operators, who can input their prices using our

online service www.myPriceboard.com;

From our users, who can collect prices at their local fuel station to help the wider

community.

Service station operators who do not participate in Informed Sources’ subscription-based

Oil PriceWatch service can freely upload prices to www.mypriceboard.com free of charge

at any time or via the MotorMouth smartphone app.

Fuel prices from all MotorMouth data sources are consolidated and made available via

MotorMouth platforms free of charge to consumers and to third parties taking our

Application Programming Interface (API) services, such as app developers, motoring clubs

including RACV, information service providers such as Compare the Market and media who

often chose to disseminate fuel pricing information.

Fuel Pricing Information and Consumer Behaviour

As stated above, the ‘market’ for providing fuel pricing information to consumers who pro-

actively compare prices is very small (perhaps a few percent of the total motorist

population). Of this very small market, it is also important to recognise that the majority

of consumers are satisfied with accessing decision support tools to assist them on where

and when to make a fuel purchase and not site level pricing.

16 Byrne and de Roos, 2017, Learning to Coordinate: A Study in Retail Gasoline,

http://dx.doi.org/10.2139/ssrn.2570637


Our own MotorMouth usage data reveals that only half of MotorMouth app users use the

“reveal” feature to see individual site prices. The MotorMouth website usage is running at

a similar level to MotorMouth App usage and does not include site level pricing. In short,

these two platforms run roughly 50/50 of our total MotorMouth patronage. Given that only

half of the App users click through to reveal site specific prices, this means that

approximately 25% of all MotorMouth users click through to reveal prices. Further, the

large majority of these click through clients are satisfied with 2 to 3 site prices per session.

That leaves 75% of our MotorMouth community accessing price band dot-e-maps and other

information including fuel price cycle graphs and recommendations on good days to fill up

(see images 1, 2 & 3 below), despite site level pricing being available. These decision

support tools developed by Informed Sources (Figures 3 – 5) are what motorists want and

allow motorists to quickly and easily make purchase decisions. These tools do not require

100% site level coverage which makes mandatory reporting by retailers unnecessary from

a consumer’s perspective. As noted above, services with less than 100% coverage do not

represent a problem anyway because with motorists knowing what is happening across the

majority of the market, if they pass a price that is not displayed on MotorMouth or another

app, they know immediately whether or not a good deal is to be had.

Figure 3: MotorMouth price band dot-e-map


Figure 4: Fuel price cycle graphs

Figure 5: Recommendations on good days to fill up


4. Technology and tools that may enable motorists to

compare fuel prices

Fuel pricing has a high level of transparency i.e. information on current and historical prices

is readily available to market participants, including consumers.

Sources of information on fuel prices:

Fuel price boards, which must be visible to passing motorists, are displayed at all

sites and are mandatory in Victoria;

Websites and phone apps provide site by site information, plus information on

average prices in a town or city, comparative local prices, historical prices and the

price cycle outlook:

o MotorMouth provides consumers free of charge with fuel pricing information

at the same frequency (updated every 15 minutes) as received by retailers

who subscribe to Informed Sources’ electronic Oil PriceWatch service,

supplemented by manual observations of price boards;

o GasBuddy and other crowd-sourced data services use observations of

market prices to provide free information to consumers.

Print and electronic media report on petrol prices in news bulletins and other

programs;

Facebook sites and other social media provide information on fuel prices;

Motoring clubs provide consumers with information on current and historical prices

sourced from private data providers such as Informed Sources, GasBuddy and

Fueltrac and regulated schemes in WA and NSW;

The ACCC provides information on price cycles in larger capital city cycles, including

advice on whether now is a good time to buy petrol;

The Australian Institute of Petroleum provides information on current and historical

terminal gate prices and historical retail prices for capital cities and a large number

of country towns;

Some retailers publish information on their current retail prices.

With so much information available on where to buy fuel, what prices are being charged,

and when to buy (particularly relevant in areas with large price cycles), it is difficult to see

how more sources of information could assist consumers and regulation of price

transparency is not necessary or justified.

MotorMouth App and MotorMouth Website

MotorMouth has two platforms in which it disseminates fuel pricing information direct to

consumers:

1) Smartphone App

2) Website

Features of the MotorMouth App include:

Free to download and use;


No advertising;

Site level petrol pricing for your favourite fuel stations;

Map based colour coded bands to reflect high and low priced fuel stations for quick

and easy comparison of where best to fill up and if a particular type of fuel is sold

there or not;

Capital city fuel price cycling graphs – know when to buy, not just where;

Know the average price of fuel in your current location and favourite areas so you

know what is a fair price;

Favourite and current locations will show you an estimate of how much you’re

saving based on the average fuel price for your petrol type and the size of your

petrol tank;

Buy recommendations – we analyse historic data to assist motorists know a good

time to fill up and a good time to top up;

Multi-product select – reveal and compare prices for substitutable fuel products

(Unleaded and E10 / Diesel and Premium Diesel);

Share pricing with your fellow motorists by uploading fuel prices at nearby fuel

stations as well as notify us by indicating unavailable fuels:

o All crowdsourced data is subjected to Informed Sources validation

algorithms;

Ability to get directions from your current location to the station you’re interested

in filling up at;

Get reports on where you’ve spent your ‘price reveals’;

See how the price was collected and the age of it;

Available on Apple and Android.

Features of the MotorMouth website include:

Free to use;

Colour coded bands to reflect high and low priced fuel stations for quick and easy

comparison of where best to fill up and if a particular type of fuel is sold there or

not:

o Price bands are also available in greyscale to assist users with vision

impairment (colour blindness);

Capital city fuel price cycling graphs – know when to buy, not just where. Select

your fuel type and up to 6 capital cities to compare average prices;

7 day rolling averages for almost 200 regional towns across Australia;

Click on the map to reveal the average price of fuel in that area so you know what

is a fair price;

Buy recommendations – we analyse historic data to assist motorists know a good

time to fill up and a good time to top up;

Multi-product select – reveal and compare prices for substitutable fuel products

(Unleaded and E10 / Diesel and Premium Diesel);

See how the price was collected and the age of it.


notes that a number of retailers have advised that the increase in GIRDs is reflective of

retailers having to meet regulatory and compliance costs19.

Fuel pricing data supports as does economic theory, that in markets with regulated

mandatory price reporting schemes, fuel prices inevitably rise. This is due to retailers being

able to access real time perfect data for their competitors by these government schemes

which facilitate tacit collusion.

In light of the evidence that supports that regulated mandatory price reporting schemes

put upward pressure on prices, it is curious why some, including the motoring clubs are

advocating for such schemes.

The motoring clubs offer an array of products and services to their members and non-

members including breakdown services, insurance, banking, holidays and more. The clubs

use fuel pricing information to strengthen their brand through regular media commentary

and as a traffic generator to their websites and other digital media. Fuel pricing for the

motoring clubs is a loss leader and effective mechanism for them to engage with their

membership as a platform for cross selling various products and services. As large,

sophisticated commercial organisations, they are driven by profit and extracting the best

possible value from suppliers. They are opposed to paying for access to fuel pricing

information from private data providers and use their advocacy activities to encourage

governments to establish regulated fuel price reporting schemes as a means of accessing

fuel price information for free.

A paper from Ariel Ezrachi, Professor of Competition Law at Oxford University, to the June

2017 meeting of the OECD Competition Committee posits that digital technology is

changing the face of competition and this throws up new challenges for competition law.

The paper cites studies in Chile, Germany and WA that show an increase in prices after

transparency regulation. It follows that regulation in NSW and proposed for the NT may

also be anti-competitive and harm consumers through higher prices.

In Chile, where petrol stations had to post their fuel prices on a government website and

to keep prices updated as they changed at the pump, the Ezrachi paper notes:

The petrol stations’ margins increased by 10% on average following the prices being posted

on the government website.

In Germany, where petrol stations are required to report price changes for gasoline or

diesel fuel in real time, the paper notes:

Rather than lowering prices, the enhanced market transparency, one economic study

found, increased prices further. Compared to the control group, retail petrol prices

increased by about 1.2 to 3.3 euro cents, and diesel increased by about 2 euro cents.

19 Australian Competition and Consumer Commission, 2016, More competition and

increased transparency key to driving lower petrol prices in Launceston media release, 20

July 2016, https://www.accc.gov.au/media-release/more-competition-and-increased-

transparency-key-to-driving-lower-petrol-prices-in-launceston


The Ezrachi paper refers to a study by Australian academics Byrne and de Roos and

comments:

Fuelwatch proved useful in promoting tacit collusion. Rivals could see on-line the prices for

every petrol station in the market, and after 2:30 pm each day, tomorrow’s prices. What

the economic study found was that the market leader, BP, through trial-and error and

experimentation, eventually facilitated tacit collusion, which “substantially improved retail

margins, created price stability in the presence of aggregate shocks, and enabled firms to

resolve conflict quickly.

Price transparency regulation is not necessary or justified and does not reduce regional (or

metropolitan) fuel prices. In NSW, the gap between the Sydney average ULP fuel price and

the average regional ULP fuel price has increased by 1 cent per litre since the

implementation of FuelCheck. The existing provision of free pricing information to

consumers by private data providers has benefits for consumers in all markets and does

not carry the unintended consequences of regulated schemes.

Where more information is required (for example, coverage of additional towns), this could

be provided by the private sector at a cost that would be far less than a regulated scheme,

without creating a new red-tape burden for small business.

The extension of private sector information for particular towns could be supported

financially by the government at low costs where there is a demonstrated need.

In summary, Informed Sources is strongly of the view that regulation should be kept to a

minimum and only implemented where public interest necessitates or where market failure

occurs. This is because regulation within the retail fuel industry will always cost consumers

whether it’s through retailers incurring additional cost in managing regulatory change and

compliance or in the case of mandatory price reporting schemes, facilitating tacit collusion.


Ideas

Regulation is often proposed that adds to costs and the regulatory burden on business

while failing to deliver any effective action to communities. Such regulation exists in NSW

and WA and is proposed for the NT.

We suggest a four-step process to address the issue of fuel prices in regional Victoria:

1. establish the facts about fuel prices;

2. identify realistic and effective options to achieve clearly identified objectives;

3. implement the best option; and

4. review and adjust after a defined period.

The process should follow well-established guidelines for regulatory impact assessment.

The following ideas may be useful to inform the committee’s thinking about the inquiry and

its recommendations:

The ACCC could seek to establish a regional price benchmark but would also need

to account for non-price factors/varying costs;

There may be an increased/extended role for the ACCC to review and understand

local markets, with an emphasis on understanding ownership/control and individual

cost structures;

In regional locations with low competitive intensity/high prices, encourage new

market participants and more competition through making prime land for additional

petrol stations and providing subsidies and assistance to new independent retailers;

There is currently some interest in local action in some towns. This suggests local

people could be empowered to act perhaps through the establishment of buying

groups or similar. MotorMouth enables fuel prices to be entered by motorists and

shared with the rest of the community. Local media and social media could also

publish the town’s cheapest locations to buy fuel. As a general principle, action is

most likely to be effective if it is local. Communities can’t expect governments to

do the work where the issues are rooted in the structure of the local market and

broad-based regulation would not be effective in any case;

Funding to promote existing online price comparison websites and apps which are

free. There is no case for the government to set up an expensive regulated

transparency mechanism that would effectively duplicate existing services;

It is not an appropriate role of government to intervene in markets to acquire

valuable data by regulation then give it free to commercial organisations such as

motoring clubs and other third parties such as information companies such as

Google – particularly when this destroys the business model of data aggregators.

Regulated transparency kills innovation;

In towns where fuel pricing data is not readily available, for a fraction of the cost to

implement and manage fuel price transparency regulation across the whole State,

the government could subsidise the collection of this information which could be

then made freely available to the public via platforms such as MotorMouth. This was

successfully implemented by the Tasmanian Government some time ago and again

more recently.


About Informed Sources

Informed Sources is an Australian family owned business that has been collecting fuel

prices in Australia since 1987. We are at the forefront of innovatively collecting, packaging

and reporting data and now export our services to more than twenty countries.

Informed Sources receives fuel pricing data from a variety of sources. These sources

include:

Direct from BP, Caltex, 7Eleven and Woolworths amongst other retailers who

provide pricing data to Informed Sources electronically;

drivers across Australia that we employ to fill gaps in our coverage;

the MotorMouth community via the MotorMouth Smartphone App; and

smaller service station operators and independent chains through our web portal,

mypriceboard.com.

In addition to providing petrol pricing information to commercial clients, government

agencies and regulators as well as state motoring clubs, Informed Sources provides petrol

pricing information direct to motorists via our consumer awareness initiative, MotorMouth

which was established in 2000 and is now the leading source of pricing information for

motorists.

MotorMouth’s core purpose is to help drivers fight cost of living pressures by finding the

best deal on fuel. MotorMouth comprises a website and smartphone app for members of

the motoring public to source fuel pricing information to buy better and smarter. In fact,

every 10 seconds, someone launches MotorMouth and reveals 5 site prices to buy better

and smarter.