Regulation of petrol prices doesn’t work, says expert

Thursday 24th January 2013

A visiting competition expert says regulating petrol prices doesn't work, and that international attention is now turning to the role refineries play in the industry.

Justus Haucap, who holds the chair of competition theory and policy at the University of Dusseldorf, told a seminar in Wellington of an economic laboratory experiment he was involved with to shed light on the issue.

The experiment tested the Austrian, Luxembourg and Western Australian regulation regimes.

In Austria, the price of petrol can only be increased in the morning but cuts are always possible. In Luxembourg, margins are regulated, and in Western Australia only one price change is allowed per day.

"The Austrian and Luxembourg pricing rules actually tend to increase the profit of the operating companies," he said.

The Western Australian regime didn't do any harm but also didn't provide any benefit.

"We got an uneasy feeling about implementing the Austrian rule in the German market after this result, even though it is only experimental evidence," he said.

He said care had to be taken in making policy conclusions from economic laboratory experiments.

But the broad policy conclusion was that pricing rules would not solve the problem of competition in petrol price-setting.

The German cartel authority had now turned its attention to the wholesale market which supplied petrol stations. There were "quite funny stories" that suggested the use of market power, including by refineries, he said.

BusinessDesk.co.nz

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