Why an investigation into gas prices will come up empty
Industry Minister Tony Clement spoke for Canada yesterday.
“No one can understand why last year when oil per barrel was around $140 or $150 a barrel, we’re paying $1.37 per litre. This year oil is south of $98 a barrel and yet we’re paying more,” he said, adding, “All I know is that prices are going up and down and sideways and no one really knows why.”
Clement pounded his fist on the issue, announcing he’ll call industry producers, refiners and distributors to Parliament for an explanation, but is one really needed?
According to the Ottawa Citizen, there have been six Competition Bureau examinations into gas pricing in the last 20 years, and every one found “no evidence of collusion or anti-competitive behaviour in the Canadian petroleum market.”
The big question now, once more: is there a conspiracy in how Canada’s gasoline is priced?
Probably not, notes Mike Moffatt, an economist at the Richard Ivey School of Business. The big reason gas is priced how it is, of course, is because of the price of oil. Generally speaking, the higher the price of oil per barrel, the higher the price of gas per litre.
But now, when the price of oil has dropped but the consumer cost of gas has not, we wonder why. Moffatt, who writes it better than anyone could paraphrase, says consumers are partly to blame:
“When crude oil prices are falling, gas stations will initially offer a small cut in gasoline prices. Consumers are grateful for the falling prices and feel that they are getting a deal,” he writes. “This causes consumers to cut down on their comparison shopping for gasoline.
“Since fewer consumers are looking for the cheapest station at which to buy gas, this slows down pressure for stations to lower prices. As a station owner, why bother cutting prices to be the best deal in town when consumers are not actively looking for the best deal? But as more consumers resume comparison shopping, prices fall in line with crude oil prices – exactly how markets should behave.”
You’ll notice that Clement, for all his posturing Thursday, ducked questions about whether his government would lower the federal taxes on gas, which account for about 30 to 40 per cent of pump prices in Canada.
But perhaps he shouldn’t be surprised if an investigation into possible collusion or price conspiracies, while smart politically, comes up empty.
By Jason Buckland, MSN Money
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