Finding value in the petrol price war

25 Oct 2013

With the cost of living and petrol prices increasing dramatically over the past decade, the idea of saving as much money as possible at the bowser is of huge importance. However with increased competition and the introduction of discount dockets by major chains the true best value is often unclear.

A Queensland study has found that independent service stations' petrol prices were on average one cent per litre cheaper than brand retailers.

The University of Queensland and Queensland University of Technology study also found that the shop-a-docket scheme run by Caltex/Woolworth and Shell/Coles led to a reduction in prices by all rivals including branded and independent outlets.

UQ researcher Stuart McDonald said the study for the first time highlighted the significant mark-up in prices due to branding.

“We found that the average consumer buying at brand outlets such as Coles/Shell and Woolworth/Caltex petrol stations still paid a higher price than they would have paid at an independent outlet,” Mr McDonald said.

“While the effect of branding for the average consumer results in a significant increase of between 0.8 to 1 cents per litre, the docket scheme produces an offset of 0.5 to 0.6 per litre.

“This brand mark-up of 0.8 to 1 cents per litre may at first seem insignificant, but it accrues directly to the brand wholesaler - in this case the four big brands, Shell, Caltex, Mobil and BP.”

The research team studied pump prices at independent outlets and Shell, Caltex, Mobil and BP service stations in Brisbane, Gold Coast and Sunshine Coast from 2006 to 2008.

Dr McDonald said brand retailers had to pay a franchise fee to the brand wholesaler and this cost was effectively passed onto consumers.

The study merged price data for petrol stations to demographic characteristics of the consumers in the surrounding area of each service station.

A complex economic model was applied to estimate the price reaction of each retail outlet to that of competing stations, as well as the characteristics of the surrounding suburbs' population.

The study team included former postgraduate student, Stephen Hogg, UQ School of Economics researchers, Dr Stuart McDonald and Associate Professor Alicia Rambaldi and QUT School of Economics and Finance Professor Stan Hurn.