Fuel study working papers released

The Commerce Commission has today released two working papers outlining its approach to assessing profitability and the key focus areas it is considering in its study of New Zealand’s retail fuel markets.

Our preliminary issues paper issued in January 2019 stated that we will focus on competitive outcomes in retail fuel markets and what factors are affecting competition in retail fuel markets. The first paper outlines the focus areas for our study within each of these categories. We intend to examine whether the factors described, or interactions between these factors, are affecting competition in ways that may not be in the long-term interests of consumers. These focus areas are:

• profitability of firms
• regional variations in prices and margins
• pass-through of changes in input costs to retail prices
• structural conditions for entry and expansion
• infrastructure sharing (horizontal) arrangements
• wholesale (vertical) supply arrangements
• consumer behaviour and firms’ pricing strategies
• coordinated behaviour among firms.

The second paper explains the Commission’s proposed approach to assessing profitability in the retail fuel sector. It discusses the insights that might be obtained from a profitability assessment and the potential limitations of it.

Copies of the working papers can be found on the retail fuel market study project page. We are not seeking further formal submissions on the topics covered in these papers at this time. However, if interested parties wish to provide feedback on these papers they should supply written comments by 5pm, 7 May 2019.

The Commission will not be providing any further comment on the study at this time.

The Commerce Commission has today released two working papers outlining its approach to assessing profitability and the key focus areas it is considering in its study of New Zealand’s retail fuel markets.

Our preliminary issues paper issued in January 2019 stated that we will focus on competitive outcomes in retail fuel markets and what factors are affecting competition in retail fuel markets. The first paper outlines the focus areas for our study within each of these categories. We intend to examine whether the factors described, or interactions between these factors, are affecting competition in ways that may not be in the long-term interests of consumers. These focus areas are:

• profitability of firms
• regional variations in prices and margins
• pass-through of changes in input costs to retail prices
• structural conditions for entry and expansion
• infrastructure sharing (horizontal) arrangements
• wholesale (vertical) supply arrangements
• consumer behaviour and firms’ pricing strategies
• coordinated behaviour among firms.

The second paper explains the Commission’s proposed approach to assessing profitability in the retail fuel sector. It discusses the insights that might be obtained from a profitability assessment and the potential limitations of it.

Copies of the working papers can be found on the retail fuel market study project page. We are not seeking further formal submissions on the topics covered in these papers at this time. However, if interested parties wish to provide feedback on these papers they should supply written comments by 5pm, 7 May 2019.

The Commission will not be providing any further comment on the study at this time.

Background
In December 2018 the Commission commenced a market study looking into the factors that may affect competition for the supply of retail petrol and diesel used for land transport throughout New Zealand.
The purpose of the study is to consider and evaluate whether competition in the retail fuel markets is promoting outcomes that benefit New Zealand consumers over the long-term. The study is focused on the supply of retail petrol and diesel for use in land transport. We are not evaluating fuel markets such as aviation or marine.

The terms of reference for the study can be found here.

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