Analysis of the retail petrol price patterns in Western Australia
Creators: name: GHAZANFARI, Arezoo
Publisher: name: RMIT University
Year: 2024
Subjects: classificationCode: 380117
subject: Transport economics
classificationCode: 380118
subject: Urban and regional economics

description: Transportation costs account for a significant proportion of household budgets. They are also a critical business cost of many commercial enterprises. In 2018, Australian households spent, on average, 14.4 per cent of their incomes in capital cities and 12.6 per cent of their incomes in regional areas on transport costs (AAA, 2017). 
Expenditure on petrol facilities the attainment of 'needs' as well as, at the margin, 'wants'. Its price, therefore, directly impacts the ability and extent households can engage in day-to-day activities and ultimately has a direct influence on aggregate economic activity. History shows that significant increases in petrol prices can cause major economic disruption, often affecting those most who are most vulnerable, i.e., low-income families and small businesses.
 
Not surprising, therefore, there has been a great deal of research into how petrol prices behave in retail markets. Previous studies mostly focused on retail petrol markets in capital cities - hence there is a significant gap in understanding regional petrol markets. This is especially problematic in Australia's case due to petrol's central role in facilitating a major part of economic activity. In this thesis, the price behaviour across all regional, rural and urban markets is explored, revealing insights relevant to all stakeholders.

The thesis presents three studies regarding retail petrol prices and patterns. While the price of petrol cannot be predicted, a deeper understanding of price behaviours can enable consumers and policy-makers to make more informed decisions.

The first contribution is to analyse the petrol price cycle in the Perth metropolitan area, based on comprehensive data from 2001 to 2018. Second, it examines the petrol price behaviours in regional petrol markets in WA using the Markov regime-switching model. Third, it empirically investigates the variation of petrol prices across cities and regions and identifies the main variables that drive the variations.
 
The first study presented examines the quantitative characteristics of the retail petrol cycle in Perth. This research extends previous studies about retail petrol dynamics in the Perth metropolitan area. It uses a longer and more extended data set to examine the consistency of Edgeworth features in the retail petrol price cycle across time in Perth. Considering the changes in the retail petrol market, as well as micro- and macro-economic conditions, this study focuses on the following question. Are the Edgeworth features of the price cycle in Perth robust and resilient to macro- and micro-economic changes? The findings indicate that there is a weekly petrol price cycle in Perth that is frequent and asymmetric. Results support the Edgeworth concept that the cycle starts with decreasing prices over six consecutive days and then followed by a large price jump in a single day. Despite the micro- and macro-economic changes in the retail petrol market, the Edgeworth features of the price cycle in Perth have been stable. The duration of the cycle and the role of independent and major stations have been stable, while the role of peak days and trough days have changed.
 
In the second study, I analyse the petrol price behaviours in the regional petrol markets in WA. This study makes a meaningful contribution to regional petrol markets in Australia. The results illustrate that there are different patterns of petrol prices in various regional locations in WA. Apart from the weekly price cycle in Perth, petrol prices' cyclical pattern has been observed only in Murray and Mandurah cities in Peel and the Geraldton city in the Mid-West. Petrol prices in the remaining regions did not have any specific patterns, and they were mostly stable. The results also reveal that petrol prices are higher in regional cities in WA compared with Perth. Remote regions, including the Kimberley, the Gascoyne and the Pilbara, have the highest prices compared with Perth and other areas. This study also compares the petrol price cycle in Perth with regional cities which have cyclical patterns. Based on the results, there are no significant differences in the price cycles in inner and outer Perth metropolitan area. There exist weekly price cycles in Murray, Mandurah and Geraldton, which are similar to Perth.
 
The third study focuses on the question of why retail petrol prices vary from one city to another within and between regions in Australia. This study focuses on analysing the impact of determinants that contribute to the petrol price disparity across all regional cities in WA. Based on the K-Mean cluster analysis and panel models, I find that a considerable part of price differences arises from cities' specific characteristics that influence demand and supply of petrol and cause variation in stations' pricing decisions among cities. Petrol prices are substantially influenced by determinants that include the wholesale petrol price, the crude oil price, petrol vehicles (petrol vehicles/population), diesel vehicles (diesel vehicles/population), population density, station density, and public transport accessibility. Findings reveal that these factors are the main determinants that contribute significantly to petrol price variations across cities.