Diesel Is Only 6% Cheaper Than Gas, Would You Still Consider Buying Diesel Vehicle?

[nameless411]

Gasoline Stations aren't a monopoly. It's technically an oligopoly, dominated by a few major players who can dictate prices. Of course, there are numerous small players who provide the same services at lower prices, but there's a basement level below which none of the players will go, dictated by cost-margins and the base cost of doing business. Which is why the minor players might charge a few cents to a peso less, but will go no lower.

this is true, but not many people know what an oligopoly is, so i went with monopoly

This is in contrast to a monopoly where there's only one supplier. There isn't. And the local situation isn't a cartel, either... some players don't follow the price trends set by the others due to internal decisions and needs (some can't lower prices as quickly due to an overstocking of stock bought at high prices... or due to internal budgetary needs).

true, some dont follow the price trends, but consider the following issues

(1) price differences usually less than one peso

(2) price increase / decrease are all usually announced within 10 hours of each other

(3) the increment of increase / decrease are all usually the SAME

so while the setup is an oligopoly, these players act and behave like a monopoly - which is why the government must step in and MAKE sure that the prices implemented are in step with the world market.

the OPSF was a fluke because it sought to stabilize the price of oil while maintaining the profit levels of the oil companies, whereas regulation to reflect the world market conditions will seek to stabilize the profit levels of these greedy oil companies.

Of course, the perfect buyer's market is perfect competition... where there are infinite suppliers who can go as low as possible to gain a market share... Unfortunately, this is impossible, as the suppliers of the oil that the local gas stations buy are a cartel... and can demand artificially high prices... which limits the basement price at which gas stations can provide gasoline, which is why fuel prices move so much in the first place.

nicely said sir, hope the oil apologists will see your point

----

Anyway, with oil prices going down... local fuel prices just went down again yesterday. In the past three weeks, gasoline prices have gone down around 2-3 pesos... and they're still going down.

Hooray for the free market.

dont celebrate yet sir, the price decrease should be in the P8 range, the weekly increases was usually P1.5, P2 and P3. However, no matter how low the price of oil dips, the oil companies cry "under recovery" and only gives in to price decreases under prolonged pressure from govt and civil society groups. magbibigay din lang ng discount pa piso piso lang......

four steps forward, only one step back.....

[niky]

this is true, but not many people know what an oligopoly is, so i went with monopoly

true, some dont follow the price trends, but consider the following issues

(1) price differences usually less than one peso

(2) price increase / decrease are all usually announced within 10 hours of each other

(3) the increment of increase / decrease are all usually the SAME

so while the setup is an oligopoly, these players act and behave like a monopoly - which is why the government must step in and MAKE sure that the prices implemented are in step with the world market.

Because they're only acting according to the price of supply. Gas stations run on a slim margin, and those who operate at lower margins only do so to try and gain some market share from the big three. That's why price differences are so small.

And station-to-station differences are also dependent on other factors. Some stations actually get preferential pricing from the mother company (lower cost, lower price) while others need to compete with nearby stations with low prices (all players cut their margins in order to gain market share).

The players don't act like a monopoly. People are complaining Shell didn't lower when the other two did... no collusion. Caltex decided not to raise when everyone else did. This is a far cry from the days when all three firms would raise, in agreement, at the same time, under the OPSF.

the OPSF was a fluke because it sought to stabilize the price of oil while maintaining the profit levels of the oil companies, whereas regulation to reflect the world market conditions will seek to stabilize the profit levels of these greedy oil companies.

How? As shown in other threads, the average return on oil is about 10%. There are huge profits in direct monetary terms, but as a percentage of investment, overall, the oil industry is about average. There are millions upon billions of dollars spent in dead-end exploration investments, refineries, and supply infrastructures. The cost of building a refinery and a network of supply here are immense, too... in the billions of pesos. It can take decades to recoup the money spent to build up corporations this big.

That system of regulation doesn't work. The government tried to regulate tuition fees... but that had to be chucked out the window last decade, when rising inflation and the economic crisis meant that the tuition fee increase cap would absolutely destroy the schools, who wouldn't be able to raise tuition fees fast enough to cover the cost of doing business.

Profit, in and of itself, is not evil. If you feel that someone is profiteering off of you, you can always go to another supplier who's charging less. (Which you can do now). An oligopoly is not a monopoly... it allows the user choice. By allowing industry to dictate prices, the government opened up the market to new players. The only barrier left is the high price of entry. Some players, like SeaOil, seek to remove some of that barrier by providing low-cost franchise options to local investors. As these increase, the market should become more dynamic.

The only way to directly infulence market price is for the government to run an oil company. They did this with Petron, seeing Petron as a price leader they could use to influence the other big two. At one point, Petron was about 40% of the Philippine market. Even under complete government control (it's now semi-private), Petron's prices were not substantially lower (sometimes higher) than the other two. And under oil-price regulation, there were years when Petron was operating at a loss... the price caps were unrealistically low for the price of oil at the time.

Think it might work today, in the absence of an Asian Currency Crisis? Look at Taiwan... they've had to change their oil-price regulation policy (they have one of the lowest in this region) due to the rising price of oil... which resulted in a budget deficit for the government-controlled CPC. Yes, keeping prices low would be nice, but going out of business is not.

In summary: if the government were to cap fuel prices at an arbitrary level, that would mean local fuel providers operating at a loss... which means that private players will not invest (which is what happened before)... and which means that the money to support the operations of a national oil company (considering our country doesn't produce oil ) will come out of the taxpayer's pockets.

nicely said sir, hope the oil apologists will see your point

And you missed it. What I was pointing out was that local players have no choice as to the movement of oil prices, which means that we cannot cap them without causing some of them to either go bust or go looking for another business to enter.

dont celebrate yet sir, the price decrease should be in the P8 range, the weekly increases was usually P1.5, P2 and P3. However, no matter how low the price of oil dips, the oil companies cry "under recovery" and only gives in to price decreases under prolonged pressure from govt and civil society groups. magbibigay din lang ng discount pa piso piso lang......

four steps forward, only one step back.....

We were told when oil prices shot up dramatically that prices would reach the 65 peso mark. The local oil companies held back for months, at under-recovery, while slowly raising prices to that level. They never got there. The under-recovery is real. Now that prices are going down, they're trying to rebuild their stockpiles and finances. It's up to the individual players how long they want to delay going down, but they'll go down.

----

Prices suck, but we can't shoot the messengers (the local gas companies) because they have no say in how much they're being charged for the oil that they use to make gasoline and diesel to sell to us.

It's the OPEC and stock market speculators that push the price of oil... but our government has no way of controlling that, since we don't produce our own oil.

[nameless411]

i understand the dynamics at how the local retail outlets operate, how their margins are small, how they earn more from their auto repair facilities more than the income at the pumps...

what i am aiming at are the suppliers of these retail outlets, shell, petron, caltex, unioil, etc....

i believe someone already pointed out that these suppliers are shooting for short term gain, that these suppliers are not plowing money back into the business, not plowing enough money back into R&D (thereby making operations, exploration, refining, more cost effective)

i am not suggesting a price cap, however, i am suggesting a profit level cap, wherein companies trading in oil should be required to :

1) make their accounting records public (have you ever wondered why some gasoline outlets wait for you to request for an o.r. even after you've already paid and gassed up?)

2) make sure that their profit levels are indeed pegged at 10%. this goes for both Philippine offices of suppliers such as Shell, Petron, Caltex, etc...as well as their retail outlets.

if the accounting records are made public, then we can really see whats happening.....

take a look at Meralco - MONOPOLY na nga, heavily regulated pa, and yet the COA cant even touch their books. these things should change

i know full well the difference between a monopoly and an oligopoly. i was citing a monopoly because some people reading through this thread might not know what an oligopoly is.....

but i disagree that the oil players in this country are not acting like a cartel, or an oligopoly for that matter.

a few exceptions in their "group" actions in raising / lowering of prices, does not make the rule.

also, their price differences are insignificant....

i have a friend who has a fuel outlet,one of the big three, she told me that her supplier warned her about her low prices, she was disrupting the market for the area. She was instructed to restructure her prices or else her franchise would be revoked.

they've always been a cartel in the past and most likely they'll continue to do so until the last drop has been pumped out of the ground.

[ale828]

In a 3rd world country where the public transportation is mostly via diesel fed vehicles. the goverment will find ways to reduce the price fo the fuel that propels the majority of its voters.

[niky]

Well... if you're familiar with business franchising (I dabble in it), the parent company really prescribes SRP (suggested retail price) for franchisers... which they can choose to follow... or not. I've also heard that some franchisers, being ex-employees or etcetera, get a lower dealer's price than others (which explains some of the station to station difference, too).

The parent company will always strongly advise you against selling too close to cost, because it's bad for the other franchisers who buy from them. I'm not sure, but it might be under a non-compete clause in the station contract.