The 'Gull effect' drives prices down

A petrol price gulf between the Bay of Islands and Whangarei is due to the city's intense competition for drivers' dollars, coupled with a lack of competition further north, according to the AA.

Far North motorists already hurting from the latest petrol price hikes - blamed on a combination of a weakening dollar and a new tax on July 1 - have begun asking why they pay significantly more for petrol than Whangarei residents. The exact difference varies by day, site and company. It tends to hover around five to six cents a litre, but can be as high as 12 cents.

The chief reason appears to be competition. Most petrol stations in the Bay of Islands, where competition is relatively light, charge a few cents more than the national price set by the big fuel companies. In Whangarei, where competition is relatively fierce, pump prices are usually below the national level. The result can be a significant difference in pump prices despite a distance of at most 90 kilometres.

Mark Stockdale, a senior analyst at the AA, said Whangarei enjoyed what was known as the "Gull effect". With lower overheads and cheaper petrol than the big companies, Gull forced other service stations to drop their prices. Such competition hotspots were found in Whangarei, Auckland, Rotorua, the Manawatu and Wairarapa.

"Everyone benefits from the presence of Gull, even if they don't buy fuel there. It would be great if that kind of competition was everywhere," Mr Stockdale said.

Ironically, however, it could lead to higher prices elsewhere. If a lot of motorists tanked up in Whangarei, Bay of Islands service stations might raise their prices to make up for lower volumes.

Last week competition in Whangarei was even hotter than usual, with Gull dropping its pump prices by 10 cents from Thursday morning until noon on Friday.

Consumer NZ senior writer Bill Whitley agreed that the single biggest factor in petrol price differences was competition, although volume and distance from a port played a part.

"Like most things, people will charge what they can get away with," he said.

BP spokesman Jonty Mills said all Northland's BP stations were supplied from Marsden Point at the same wholesale price. A delivery fee based on volume and distance from Marsden Point was relatively small.

Some BP service stations were directly owned and operated by BP, so the company set the pump price.

Most, however, were independently-owned, and the owner set the price.

In areas with little competition they could choose to set a price above the national average. In places with fierce competition they might sell below the national price and hope to make up for it by selling a greater volume.