COMMENT
The petrol industry at home and abroad has been subject to hundreds of competition authority inquiries. The market study by our Commerce Commission took 424 pages to sit on the fence. About the only time a competition authority anywhere finds a smoking gun is when a whistle-blower squeals on a couple of neighbouring petrol stations phoning around to end their latest price war.
The commission found excess profits because if you torture the data for long enough, it will confess.
But first, I digress across the ditch to the hub of the matter. When I worked on the Australian Productivity Commission's 1994 public inquiry into petrol pricing, everyone agreed that the only thing that made petrol special was each capital city could only support one refinery. New Zealand only has one refinery too. If the independents could import rather than queue at the city refinery, jointly owned by the oil majors on terms they dictated, competition was fairly assured. Who was I to know that a mere four years later, Gull would set up in New Zealand to import petrol profitably ever since? Gull proved new entry is easy into the petroleum industry. Instead of risking $3 billion on building its own refinery, Gull imports what it needs to a network that grew to 90 stations.
The commission begrudgingly admits that entry is easy into petrol retailing but nonetheless spent hundreds more pages in its market study looking for excess profits. The commission found excess profits because if you torture the data for long enough, it will confess. But the idea that profits tell you anything about the state of competition died a brutal death in economics in the 1970s. It is not taught in economics classes other than as a famous wrong turn in thinking about competition policy.