The price of gas

I am in Ottawa, where the price of gas is 78 cents per litre. When I left Vancouver a couple days ago, the price of gas was $1.05 per litre. Would someone please explain to me how gas prices could be so different, especially given that BC is right next to Alberta. Is it that Ontario is consuming middle east oil and that is cheaper? Are there major differences in taxation (I know that the Greater Vancouver Regional District has an extra gas tax that might add a few cents to the retail price, but I do not think there is a major difference in provincial taxes)? Am I just getting gouged?

UPDATE: Back in Vancouver now and the price is in the 92-94 cent range. This could signal a downward in gas prices, but my speculation is that this is mostly reflecting the fact that I got back on Sunday. The price of gas in Vancouver has a ten cent weekly swing: it goes up on Thursday(-ish) by ten cents then declines over the next week. I know of no other market where this happens (ie the price is fairly stable so any variations reflect real changes in the underlying costs of crude).

All stations across all corporate entities do this roughly in unison. And yet an investigation by the Competition Bureau last year found no evidence of collusion, a finding that boggles the mind. They state:

Street-level pricing is cyclical as competitors attempt to increase market share by cutting prices or by restoring prices when operating margins fall to unsustainable levels. As a result, retail prices within a region or town can change significantly in response to competitive forces. It is common for a gasoline station to change its prices more than 25 times per week. Understandably this is a source of frustration for consumers who miss a price reduction. Price swings of up to 10 per cent are not uncommon. In gasoline retailing, the constant cycle of price changes in a market is actually a sign that the market is competitive. Changes in the level of consumer demand or the conditions of gasoline supply may also cause price shifts.

In other words, it’s not a bug, it’s a feature! Such a defensive text is surprising from the Competition Bureau – while they cannot prove collusion in a strict legal sense, that does not mean it is not happening. The investigation was spurred by price hikes post-Katrina. Hugh Mackenzie did a good piece on this for the CCPA finding that the mark-up on gasoline was much larger than any underlying change in the price of crude – to wit, we were getting gouged and oil companies made spectacular profits by taking advantage of the situation.

Competitive provision is basically an illusion in this market; it would be better for the government to regulate prices. And if anything those prices should be regulated upwards to reflect the externalities of air pollution and CO2 emissions. The logic of competitive provision is not particularly compelling.

One comment

  • CKNW has spent the whole week basically talking about the exact same thing with regards to price differences between here and Toronto for example. The GVRD tax is only a few cents, so that doesn’t explain what is going on. They keep ruling out collusion, but I don’t know anymore.

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