Program: Are the petrol stations ripping us off?

Sam Hawley: Are the petrol stations ripping us off? Are they cashing in on the Iran war? And if they are, is there anything that can stop them? Today, David Byrne, Professor of Economics at Melbourne Uni, on how fuel companies justify the rapid price rises and what motorists can do to counter them. I'm Sam Hawley on Gadigal land in Sydney. This is ABC News Daily. Music David, to say petrol is expensive right now is a bit of an understatement, isn't it? What have we actually seen? It's been a pretty rapid increase, hasn't it?

David Byrne: Yeah, we've gone from prices, at least in major cities, I think Melbourne, Sydney, from around, you know, an average of 150, maybe 160 cents per litre. And I checked this morning and we're right around 230,000. That's 30 cents per litre, so yeah, that's 70 cents per litre within a few weeks.

News report: From coast to coast, paying at the pump, drivers navigate prices they've never paid before.

Motorist: It's $100 extra every week now.

News report: Sky high prices in Darwin, queues in country Victoria.

Motorist: Yeah, it's pretty brutal to be fair. Like I've filled up here on Saturday in a different truck and it was $2.60 and then I filled it up here a week ago and it was only $2.15. So it's a big difference on a big tank, obviously.

Sam Hawley: Yeah, so you're paying a fair bit more to fill up your tank, depending on how big your car is, of course.

David Byrne: Yeah, that's right.

Sam Hawley: But, you know, it could be, what, $25 extra a tank, something like that on average.

David Byrne: Oh yeah, I mean, a 65 litre tank at 70 more cents per litre, that adds up pretty quickly, more like $40 more, you know, now than it was just two or three weeks ago.

Sam Hawley: Yeah, it's really substantial. And in regional areas of Australia, of course, it's even higher, isn't it?

David Byrne: Yeah, so what I'm talking about is somebody filling up a smaller car once a week. In regional areas, being from regional Canada myself, I can appreciate people filling up larger vehicles, 100 litre tanks, twice a week and driving just further distances and petrol is a necessity for them.

Sam Hawley: Yeah, they don't have an option.

David Byrne: That's right.

Sam Hawley: Now, what I want to consider with you is whether the petrol companies, the fuel companies here, acted a little too fast to increase their prices, because the fuel that we were buying in the days when the war first began, surely that had already been purchased before we even knew there would be a war.

David Byrne: Yeah, that's right. So I think a few challenges with that is, I think when these companies set prices, it's not just based on the fuel and the petrol that's in the ground that they've already purchased. And I completely understand why people would jump to that. It makes a lot of sense. But they're also trying to anticipate expected costs that are going forward. And I think one thing we don't have a lot of visibility into, and if you're something like a competition agency trying to understand what's too aggressive or too fast, you would want to know more specifically the contractual details about the actual prices that they pay at a given point in time. And so lacking that visibility, it's hard to actually say what's too fast or too slow. And it's also a reason why you'd want visibility into that, to make that assessment on whether or not they were acting nefarious. I think the more telling or the more concerning issue would be something that we call rockets and feathers pricing that exists in these markets. And so this is where you might really want to, as we go through this shock, interrogate what the companies are doing. Basically, in many markets, especially oil, prices tend to rise like rockets. So think of a rocket taking off to the moon. And when the costs come down, when they come down at the same rate, we often find in markets where companies have market power, meaning there's a few dominant players that can really set the price, you find prices, they don't go down like rockets. They'll come down like a feather floating gently in the wind. And so we've seen them pass on those costs very rapidly with what's happened in Iran. And what we should be expecting, whenever this resolves itself, a competitive market would suggest that they should be passing those costs, reductions when they do come just as fast.

Sam Hawley: Well, the energy minister, Chris Bowen, he says we really can't expect the cost of fuel to come down until the conflict is over. And then, as you say, we expect that it will come down like a soft floating feather, I suppose.

David Byrne: But, you know, that's where I think as a government we should be proactive on the front foot and saying, we're the downward rockets.

Chris Bowen, Energy minister: Petrol and diesel are very expensive at the moment by any standard. We are going to see that continued pressure in the system. Obviously, we all want to see the situation resolved in the Middle East as quickly as possible. That's the preferred outcome on many levels for many reasons, not least of which is it would see the oil price return to more and more normal levels.

Sam Hawley: Well, David, the ACCC, it is having a look at pricing. It's held an emergency meeting with the major fuel suppliers this week, like Ampol, Chevron, BP, Mobil, United Petroleum, there's 7-Eleven and a few others.

News report: Fuel companies today hauled before the competition watchdog to explain the rapid price spikes as the Treasurer moves to double fines for those found to be price gouging.

Jim Chalmers, Treasurer: The ACCC has the powers that they need to crack down on any dodgy behaviour in these markets. We've increased surveillance. We will be increasing penalties in the legislation that I look to introduce to the Parliament next week.

Sam Hawley: So what do you reckon went on behind closed doors in that meeting?

David Byrne: I think probably at one high level, they want to just make sure they understand the fuel supply chain. And I think episodes of shortages, especially regional areas where a lot of the food for the country comes from. The next question would be getting into what you're asking about, which are competition-related issues. Is everything you're doing on the level when we think about what a competitive market should be delivering for Australians? Part of it is just calling it out and making sure there's public pressure on companies, which they do respond to in price setting. And then I guess also trying to convey some form of a threat that we're looking and we'll do something. I'm not sure if they can, but we will actively look and look at our options if we think you are doing something nefarious.

Sam Hawley: Yeah, the Treasurer, Jim Chalmers, he's told the ACCC to throw the book at these fuel companies if they push up prices unreasonably.

Jim Chalmers, Treasurer: Our message once again is very simple. Suppliers and retailers must not treat motorists as mugs. They are on notice. If they do the wrong thing, the ACCC will throw the book at them.

Sam Hawley: But tell me, what power does the ACCC actually have in that area when it comes to things like price gouging?

David Byrne: Right, so when you get into the courts, you need to get at basically what does it mean to be unreasonable? You said the key word, right? And so we can agree that it's unreasonable for a couple of companies to phone each other up and fix prices. That's just per se legal and would be prosecuted under Section 45 of the Competition Act. We also have provisions in our laws that say companies can't in private, through private conversation, or in public, through public announcements, together move prices up in a way that's not consistent with a competitive market. But then if I was to come back to what the fundamental issue then becomes is how do you determine that's going on, that we're working in concert together, separate from we're just both responding to cost shocks at the same time or we're just both responding to changes in demand. And that's, I think, one of the challenges we face in bringing these types of cases to court.

Sam Hawley: It sounds rather difficult.

David Byrne: It's very difficult.

Sam Hawley: Yeah, and the thing is, petrol prices are really determined by the market, right? It's a free market. It makes it even more difficult.

David Byrne: It's a free market. It's where demand, supply, and their decisions all come together to end up at this magical thing called a price.

Sam Hawley: All right, well, David, this isn't, of course, the first time we've seen this sort of thing or accused fuel companies of price gouging before. It pops up pretty regularly, actually. So let's consider some of the things that have been done in the past to just try and, I guess, make sure consumers are getting a fair deal. Now, in Western Australia, they introduced Fuel Watch, didn't they? Just first remind me what that was.

David Byrne: So, in WA, actually in 2001, what they introduced was a website, and now they have apps and these sorts of things where the companies have to, by law, upload all the prices that they're going to set at their stations to this app so that the government can then give consumers the information to shop every day. So that's kind of like one of the key features of what they've done out there. And so this is really in the spirit of let's empower consumers to make informed choices. And when consumers can compare and pit companies against each other, we can stimulate competition. So that was kind of the – that's the original – one of the original pushes for that website, and websites like it.

Sam Hawley: But the thing is David, you did research into FuelWatch and what you found is that the petrol companies themselves were using it to basically increase their prices?

David Byrne: Yeah, that's right. So we went looking in that data, and one of the things we found around the start of 2010 in our analysis was they were able to increase overall prices. They were able to collectively increase price-cost margins sort of over time by around three cents per liter, three to four cents per liter by our estimates. And we were able to rule out that demand was drastically changing or cost was drastically changing. We were able to account for those factors. It was relatively normal times. One thing that came with that was people were able in Perth to predict that prices would go up every Thursday. And so there's a sense in Perth where we could predictably understand when the high-price day was every week Thursday and the low-price day every week maybe was Wednesday. And there's some comfort in the predictability. What was kind of missed was that may be true, but they were setting prices at higher levels everywhere, every day. So you're feeling like you can win, but actually everybody's losing because they're doing this at a much higher price level than they were previously.

Sam Hawley: Oh, my gosh. Okay. So just tell me then if Fuel Watch isn't the answer, what other options are there then? I mean, could the federal government cap prices, for instance? I reckon motorists would be pretty happy to see that.

David Byrne: Okay, so price regulation and capping and these sorts of things feel like in the short term something that would give pricing relief. But then the market's going to start responding to that. You'd have stations potentially going out of business. It would have a chilling effect maybe on forms of innovation, maybe even other sectors where if we're going to do petrol, why not do health care? Why not do energy? Where would you draw the line there? One thing we found in our research with this price transparency and the apps, these apps inform all the companies on what they're all doing with each other. And what we found in Perth was they could use that data to try to manipulate how the market behaves. So that's kind of like the company side of the equation. But there's this other large group in the markets besides the companies, and that's us. That's the consumers. When consumers are more heavily engaged with the apps and when they search and when they use them to actually pit the companies against each other, on the demand side of all of this, we can actually create downward pricing pressure as consumers in making smarter choices over time. By smarter, I mean finding, say, lower priced fuel in this example. And so we've examined that using data from New South Wales, where they had a very successful app called Fuel Check that was launched in around August 2016. And if you look at pricing in New South Wales relative to, say, Victoria, which didn't get an app around that time, you started seeing downward pricing pressure in New South Wales, especially in places, in towns across the state where there was more and more people using the data and the technology to shop. In these cases, it's the state governments mandating price transparency, and then they have to finish the job having a really easy app that we can all use to actively shop. And nowadays with AI agents and these sorts of things, you could even push further and even have these agents be like your coach, helping you find the best deal all the time. Why not? And so we're entering an age where we can increasingly use this type of data to create informed shoppers, and that actually directly injects competition into our markets.

Sam Hawley: All right. Well, David, it sounds like the government's hands are somewhat tied, and the ACCCs are as well. So yeah, it comes down to us as consumers. Get the app, and you need to shop around. And that's going to help everyone in the end.

David Byrne: So that will help. And I think if the government is using this time of extreme pricing and petrol to start exploring options around monitoring, and as I was alluding to before, getting even more information on the way the company's cost structures look and the way demand looks, that would be another way in which the government can continue to up its game in terms of monitoring and prosecuting things that might be nefarious. We just need to know how all the parts of the market work to make those inferences.

Sam Hawley: David Byrne is a professor of economics at the University of Melbourne and the Ritchie Chair of Economic Research. This episode was produced by Sydney Pead. Audio production by Anna John. Our supervising producer is David Coady. ABC News Daily will be back again on Monday. Thanks for listening.