Is price variation an indicator of competition?

[Brendan Burgess]

I have seen some comments over the years along the lines of "The variation in price shows that there is no competition in the market".

Here are some quotes from the August edition of Consumer Choice:

"All the many different surveys on motor fuel prices in recent times show, without exception, huge price variations in petrol and diesel"

"In our survey ... the variation in prices went from a low of 95.9c to an amazing 107.9c..."

"Ridiculous rip-off
In Ireland today it is easy to see that we are bing ripped-off on our fuel prices and, despite claims of competition, it is obvious local cosy cartels exist where not a single stations charges any price significantly lower than any other"

This is accompanied by a big long list of stations and the price for diesel and unleaded petrol. There does not seem to be any obvious geographic theme to this list. The cheapest petrol and the dearest petrol were both in Cork. OK, Cork is a big place but surely the advice to the canny shopper would be to fill up their tank when they are passing a cheap station.

The reality is that suppliers cannot win. If there is price variation, anyone selling at a higher than average price is ripping people off. However, if prices are in or around the same level, there is a cozy cartel fixing prices.

Brendan

 

[Magoo]

Yeah, I've also thought it funny that people give out about the huge variations in the price of certain items such as petrol without suggesting that people should do the logical thing and buy it from the cheapest supplier - thus forcing the more expensive operator to follow suit or risk losing business.

Conversely, people get less worked up about the prices charged by pharmacies which operate a virtual monopoly. It's as if they don't care paying excessive prices as long as they don't feel they're paying over the odds relative to any other provider.

Generally, I think people have a very casual attitude to price competition. They'd like it to be there but they don't feel they're part of the solution.

 

[CCOVICH]

Conversely, people get less worked up about the prices charged by pharmacies which operate a virtual monopoly. It's as if they don't care paying excessive prices as long as they don't feel they're paying over the odds relative to any other provider.

But surely this is because that pharmacy prices are less 'transparent'. i.e. there aren't large signs hanging in front of the pharmacy advertising their prices. Also, there are only two different products that most petrol stations sell-petrol and diesel, so it impacts on more people, i.e. all car drivers need either petrol or diesel on a regular basis, but only a relatively small number of people will be buying drugs on a regular basis.

For instance, I fill up my car every 2-3 weeks, and regularly drive past petrol stations, making a note of their prices. I would say that I visit a pharmacy no more than 2-3 times in a year, and would almost always be buying a different product (the cost of which I wouldn't know in advance) each time.

In general, people only get worked up about something when it affects them.

 

[Humpback]

Generally, I think people have a very casual attitude to price competition. They'd like it to be there but they don't feel they're part of the solution.

Absolutely!!!

On another forum, I recently had a very interesting discussion around this topic, and the absolute need for shopping around to find the best prices in almost anything you're buying.

I think I've mentioned a strategy here before.
1. Find the product you like/want/need/desire.
2. Determine the manufacturer/importer/distributor.
3. Ring and find out retailers in the area you live, or want to buy in.
4. Then ring a few of these people asking the price, and if necessary cost of delivery.
5. Determine the cheapest and purchase from them.

The person concerned on the other forum slated me for coming up with such a ridiculous and time-consuming solution to RipOff Ireland. His comment was along the lines of - "I don't have time to ring around like that because I have to work so many hours overtime just to be able to exist in this country".

Needless to say, I had a bit of a go at him for that idiotic comment. The above would take no more than an hour to do, and in my case, saved me about €400 on a purchase. Anyone here get paid €400/hr???

 

[PGD1]

I did the above and saved over IEP800 on furniture. Wouldn't do it for a packet of crisps though...

 

[ashambles]

Well I always prefer to see a price variation, some costs like rents will always differ for every location.

However I wouldn't draw any conclusions from these particular CAI results since I think the expensive petrol station they give is a special case that should have been ignored.

I know of the station and it's part of a major car retailer. I don't know anyone who fills up there and have rarely seen anyone use it, I think it's only open when the car dealer is opened. It's just a couple pumps - there isn't a shop.

It's possibly kept open for reasons other than making a useful profit from it, maybe a convenience for the car dealer. (When you're exclusive dealer in the city for 4 brands I'd imagine that you don't need to work too hard on a side business where there is competition.)

In reality and boringly (for reporters etc.) petrol in Cork varies by a reasonable amount in stations that people actually use.

 

[daltonr]

My concern about Rip-Offs isn't variation in price. I do shop around for the cheapest fuel and I factor in how long I'll have to queue. E.g. I tend not to buy from Tesco in Dundrum because for 1c per litre more I can get diesel down the road from there without any queue whatsoever.

I do benefit from Tesco even though I don't shop there. The Statoil would be a lot more expensive if Tesco wasn't up the road.

My problem with "Rip-Off Ireland" is when competition like Tesco in Fuel or Aldi, Lidl in groceries is prevented from opening in a particular area due to vested interests, some of whom are supposedly elected to promote the rights of their constituents. Or when national lobby groups like the Vintners actually become publically visible cartel's.

If Prices in an area are high and someone offering lower prices is prevented from doing business in that area, it doesn't matter how similar or dissimilar existing prices are what matters is that existing prices are being artificially supported and competition is being suppressed. I.e even the cheapest fuel in a town might be a rip-off if it's more expensive than someone else is prepared to supply it for.

If you throw a stone in Ireland you'll hit an example of this.

-Rd

 

[Betsy Og]

I think the motor fuel is one area where there has always been price competition. I always use the same station as its consistently the cheapest - I does be watching out! - and its obvious others do the same as that station always busy.

I think the major problem is people who dont bother to find out the range of prices for items - Momma Harneys advice is the best advice I could give anyone, shop around!! And a connected note is, dont dash out and buy something the first time it enters your head, take your time, you've lasted this long without something so it'll hold for another month. So every time you pass somewhere selling what you're thinking of buying the go in and have a look around, talk to the staff about features and quality etc. Then finally you'll make the best choice and wont be ripped-off, and the above isnt arduous, it can be interesting !!

p.s. I am the only one in the country who sees the obvious sense in waiting until sales to buy stuff??? even topping up the Christmas decorations in January (extreme example but they're cheap, dont go off, and no storage costs)