Prices don't move in tandem in a truly competitive market

The reply by Minister of State for Trade and Industry Koh Poh Koon that there is no anti-competitive behaviour among petrol companies is not convincing ("'No evidence of cartel' among petrol companies"; Tuesday).

Dr Koh noted that the prices for octane-95 petrol have moved in tandem with wholesale prices of refined oil and that there was "no significant variation" between the time taken to raise - or lower - listed prices at the pump when wholesale prices changed.

This does not suggest that there is no anti-competitive behaviour; it only shows that the companies are reacting to changes to the cost of their sales.

In a truly competitive environment, the companies would be thinking of maximising profit, not just reacting to cost.

Petrol is essentially the same, regardless of brand. Thus, a slight price difference can sway a lot of customers.

Yet, when Shell increases its price, SPC, Caltex and Esso inevitably follow.

It would serve the latter three better to stay put; they can very rapidly take over Shell's customers and, despite charging less, will be selling more petrol and possibly earning more profit, not to mention increased market share.

This is how companies in a truly competitive environment behave, not move prices in tandem.

As long as they do so, it is difficult to believe that there is no anti-competitive behaviour.

On another note, non-subsidised octane-97 petrol in Malaysia is currently retailing at RM2.25, which is about 80 Singapore cents. Yet, our similar grade petrol is priced at about $2.

Even after deducting government taxes and the higher cost of doing business here, it is still a very comfortable margin.

The only way to convince motorists that there is indeed no collusion and that oil companies here operate in a competitive environment is to mandate that prices be prominently displayed and, for good measure, scrap the three-quarter tank rule.

Foong Swee Fong

A version of this article appeared in the print edition of The Straits Times on March 03, 2016, with the headline 'Prices don't move in tandem in a truly competitive market'. Print Edition | Subscribe