The ACCC has updated their econometrics on FuelWatch and it reinforces the positive effects of that policy found in WA. The new updates do two things. First, they respond to claims that price falls in WA were the result of the entry of Coles rather than FuelWatch. The ACCC uses a test for endogenous structural breaks to look for significant events. They find that both Coles’ entry and FuelWatch were such events but that FuelWatch’s effect was almost three times as large. Now, readers of this blog — although you might not know it — are familiar with the use of these tests in competition policy. They were at the heart of my submission to the Reserve Bank on credit cards demonstrating that payment system reforms were not associated with structural break points even though normal market events such as interest rate rises were. (By the way, Stephen King and I have a new article on those reforms in the Melbourne Review).
Second, the ACCC looks at the highs and lows of the petrol price cycle. They find that the introduction of FuelWatch in WA, not only reduced prices by 3.5 cents per litre on high priced days it reduces prices by 0.7 cents per litre on low priced days. So that means that even bargain hunters were better off. This appears to be all about competition rather than about the petrol price cycle per se. All very interesting.