Time for the Competition and Markets Authority to go perhaps
If you charge a lower price than the other guy then you’re driving them bankrupt - unfair competition. If you charge a higher price then you’re gouging the consumer. And if you charge the same price then of course you’re colluding. This means that any bureaucracy looking at pricing in the economy always has a way to hang you:
Petrol stations have been branded “outrageous” after overcharging motorists by £1.6bn last year.
The Competition and Markets Authority (CMA) found that petrol stations’ fuel margins – the difference between what a retailer pays for its fuel and what price it sells it at – remain significantly above pre-pandemic levels.
The regulator said the price mark-up was particularly stark at supermarkets, whose fuel margins are roughly double what they were in 2019.
Erm, OK. But what was happening in 2019?
Motorists should not expect to see a return of supermarkets using cheap fuel to lure in shoppers, an industry source has told Sky News.
Oh:
Cast your mind back to the bad old days before the pandemic when the supermarkets were always trumpeting their latest cuts in the price of petrol, and thousands of independents hated them for it. The supermarkets claimed their financial muscle meant their costs were lower than the rest of the market – which was true – and they were simply passing on the benefit to their customers. But everyone knew they were also taking a minimal margin in an attempt to draw shoppers into their stores.
Gosh:
Supermarkets have the incentive to sell cheap petrol as a loss leader. Independent retailers make all their profit from petrol (except selling food in small shops). However, supermarkets have an incentive to offer cheap petrol to encourage people to go to Tesco or Sainsbury’s. People often do both petrol buying and a big supermarket shop. Therefore, even if the profit margin on petrol is very low, it doesn’t matter because they will make a profit from selling more groceries. This has been another factor in lowering prices.
Supermarkets and other fuel retailers will soon have to publish live fuel prices. Will food be next? Be honest and get ahead of the transparency curve. Major food retailers should show real leadership by ditching loss leaders.
For car owners, such price cutting seems heaven-sent. For the major oil companies, it is a gamble forced upon them by the supermarkets. Esso and Shell are having to take such drastic measures to arrest the decline in their market share as millions of customers switch to supermarket pumps.
Superstores such as Tesco, Sainsbury’s and Safeway are effectively operating as oil companies, buying cheap petrol supplies in huge volume on the open market, and retailing through their on-site filling stations.
So, before pandemic lockdowns and so on the supermarkets were selling petrol at low or no margins as loss leaders. The CMA observed and thought this was bad. Petrol retailers have to provide their pricing now in a transparent manner and this has - given the crackdown on loss leaders - led to prices and margins rising. The CMA observes this and thinks that it’s bad. The supermarkets are ripping off consumers by not selling petrol as a loss leader, instead charging a more normal margin.
The CMA is complaining about the effects of its last complaint. This is the sort of self-regarding behaviour that will turn even a bureaucracy blind.
The thing is we’ll never change the behaviour of a price monitoring bureaucracy. They will always do this - it’s either too aggressive, gouging or collusion. It’s never, ever, market participants simply competing. As we’ll never change the behaviour of the bureaucracy better to do without the bureaucracy. And the taxpayer thereby saves the cost of it which they could apply, as they wish or not, to petrol.
Tim Worstall