Source: Radio New Zealand
RNZ / Dan Cook
Do petrol prices rise faster when oil increases, than they fall when it drops?
A number of motorists have got in touch with RNZ over the weekend, complaining that it appears that when the price of oil rises, petrol companies respond quickly with higher fuel prices. But when the price of oil drops, the relief does not flow through as fast.
The oil price is now over US$100 per barrel and 95 has reached $3 a litre in some parts of the country. Gaspy said the average price of 91 was $2.64 on Monday afternoon.
Murat Ungor, an economist at Otago University, said it was a known phenomenon.
“Economists have a name for it: the ‘rockets and feathers’ effect. This label suggests asymmetries in the immediate adjustment to a cost change as well as in the number of periods needed for a complete adjustment.”
He said it reflected rational responses to market structure, search costs and competitive dynamics.
“Whilst the pattern disadvantages consumers during price decline periods, it emerges from well-understood economic mechanisms including inventory management, menu costs, asymmetric search behaviour, and oligopolistic market structure.
“Policy interventions focusing on enhancing price transparency and maintaining competitive market structures can mitigate, though not eliminate, asymmetric price transmission.”
He said it was a pattern seen in the UK and US, too.
“Competition authorities across the globe have long been interested in the question of whether retail gasoline and diesel prices rise more quickly than they fall, relative to the movements in underlying input costs.
“So why does this happen? There are a few reasons working together. First, when oil prices go up, petrol stations need to replace their fuel at higher costs, so they raise prices quickly to avoid losing money. All stations face the same pressure, so prices jump across the board within days. But when oil prices drop, there is less urgency. Stations can keep prices higher for longer because most customers do not actively shop around for cheaper fuel when prices are falling gradually.”
He said that it was not price fixing as much as it was fuel retailers responding to competitive pressure and consumer behaviour.
“When you are more likely to notice and complain about rising prices than slowly falling ones, stations can get away with slower cuts. Price comparison apps and websites can help by making it easier to find the cheapest fuel, which forces stations to compete more on price. But the rockets-and-feathers pattern is unlikely to disappear completely. It is baked into how the retail fuel market works.”
In 2024, a focus report from the Commerce Commission said that its analysis showed fuel companies were quicker to increase petrol prices than to lower them.
“There is no evidence that fuel companies ultimately fail to pass through the cost increases or decreases to consumers, rather the speed at which companies do this varies. This effect is present for Regular 91 and Premium 95. The commission estimates that if fuel companies drop prices as quickly as they increase them when costs change, consumers would save in the order of $15 million a year.”
But Simplicity chief economist Shamubeel Eaqub was not convinced it was such a problem. He said it could be that people were more sensitive to price rises than they were to price falls.
“Using 20 years of weekly MBIE data, the rockets-and-feathers hypothesis is not confirmed with the well-specified models. The popular intuition may reflect cognitive bias, structural factors like taxes being a large fixed component of retail prices, or something else. I certainly don’t see the rockets and feather effect in the data.”
Z did not have anyone available to speak. BP said it was monitoring the situation closely.
“There are a number of factors that influence prices. We continue to review bp Connect prices every day to ensure competitiveness in the market. The bp website has more information on the facts about fuel pricing. There are also a number of independent bp operators all around the country who set their own prices and manage their own operations.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
