a) What type of market do petrol companies operate in wholesale sector? Explain your answer. (3 marks) b) Assume the biggest four oil companies in Australia decided to collude and agree to charge a...

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ECOM4000
Economics
Trimester 1, 2017
Group Assignment
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Family Name Name Student number State
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Part 1: Micro Economics [15 marks]
Adapted from
Petrol companies are involved in hindering competition, a major inquiry into unleaded
petrol prices has found.
By Peter Veness
The report by the Australian Competition and Consumer Commission (ACCC) found "no
obvious evidence of price fixing or collusion" but did find there were "fundamental structural
issues" that hamper competitiveness.
The inquiry found 98 per cent of the unleaded market is controlled by four petrol companies -
Shell, Caltex, BP and Mobil. This makes for a very concentrated industry," the inquiry report
said.
"Our inquiry found that overall the petrol market in Australia is competitive, however, we did
find some structural factors that operate to constrain a fully competitive market at all levels of
the supply chain," The ACCC chairperson told reporters at the inquiry's release in Canbe
a.
The Assistant Treasurer immediately directed the commission to set up a formal process to
monitor petrol prices across the country. In the past, the commission has only performed
informal "spot" monitoring of petrol stations.
The commission will publicly report annually to the Assistant Treasurer saying that could be
changed if the commission found anything of concern. He promised the new directive was only
the start of a concerted effort to deliver increased monitoring of the industry.
The government has given the commission power to investigate not only prices and costs
ut profits as well.
The NSW premier says the federal government's commitment to give the consumer
watchdog permanent monitoring power over petrol prices is a win for families.
"If the ACCC has found that there is no collusion or abuse of market power, then, on the surface
we accept that," The premier told reporters.
"But there is a continuing role for the ACCC to ensure that there is no abuse of market power
and no abuse when it comes to petrol prices.
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But the ACCC’s report had still left many questions unanswered, the motoring body said.
NRMA already knew there was no "obvious" collusio
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The methods retailers used to make sure their prices matched their competitors' - including
a web-based data system that gave retailers real-time updates of their competitors' prices -
were "much more sophisticated", he said.
"It's collusion in a much more sophisticated form that does not meet the na
ow
definition of the Trade Practices Act.
The government had to make sure the technology was not being exploited to rip off
motorists, Mr Evans said.
The report gave the new government a starting point to make the market more
transparent and competitive.
Appointing a petrol commissioner was a "good step", provided the government gave them
powers to keep the oil companies in line and maintain transparency in petrol pricing.
Part 1: Micro Economics [15 marks]
1. Based on the article above answer the following questions.
a) What type of market do petrol companies operate in wholesale sector? Explain your
answer. (3 marks)
Answer – In the wholesale sector of petrol, the companies should be highly competitive
ut the price of unleaded petrol has been concentrated majorly by four companies. These
include Shell, Caltex, BP and Mobil. They set up a kind of collusion in the market and no
firm deviates from the decided price and quantity to be sold in the market. It hampers the
consumer surplus in the final equili
ium in the market as they have to pay more for little
quantity due to low price elasticity of demand for petrol and no substitutability.
) Assume the biggest four oil companies in Australia decided to collude and agree to charge a
high price on petroleum products. Graphically demonstrate the price and output in this
colluded market compared to a competitive market. (4 marks)
Answer – Under collusive market structure, rival firms undergo an a
angement of cooperation
so that they can earn...