Friday, April 21, 2006

It's an Oligopoly - but that's not the proof

I cannot believe the number of people and market commentators trying to use the argument that "oil companies have different cost structures and should be charging different prices; because they aren't there is price fixing involved."

Yes - there is probably price fixing in the petrol prices - but this is a completely nonsensical argument.
Petrol - as much as the oil companies try to differentiate - is still treated as a fungible product by the consumer. Which means we are not willing to pay more to get it from one supplier than another (BOCTAOE).  So a company that charges more than its competitors will lose market share very quickly. 

Funnily enough the Commerce Commission would be called if the other extreme happened.  If one of the oil companies tried to use its "different cost structure" to actually charge less than what its competitors could then it would be charged with anti-competitive practices and get fined.

A flat pricing structure for a fungible product is normally taken as a sign of a functioning market.  Why are people determined to try and use that as proof of Oligopolistic profits?
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1 comment:

Jimbo Big Toe said...

The obvious answer would be because people are mad about prices. Wether or not you or others are correct is really besides the point. When there is a problem of sort experts come out of the woodworks. In part to distract people from comming up with real solutions.