[Oil price plunge] No free market, only market failure

01 point of view

Written by: Review Editor

2020-04-28 16:00

In the Economic Development Panel of the Legislative Council held on Monday (27th), cross-party lawmakers also pointed out that after the sharp drop in international oil prices in recent months, there has been no significant reduction in the price of fuel used for vehicles in Hong Kong. As Hu Hongyu, Chairman of the Competition Commission, said, the trend of vehicle oil prices in Hong Kong is a market failure, and the reason is not only the lack of statutory powers of the Competition Committee, but also the Hong Kong government's mentality of governance Tiring.

Hu Hongyu, chairman of the competition committee, said that difficulties in obtaining relevant information from oil companies will affect research work and conclusions (data picture)

At the meeting on Monday, cross-party lawmakers pointed the accelerating slowdown of Hong Kong's oil prices directly to the Environment Bureau, while the chairman of the competition committee changed its past attitude and rarely criticized the government for giving up its policy initiative and ignoring the current market failure. According to the Legislative Council document, although the import price of unleaded gasoline has dropped from 4.41 yuan at the end of last year to more than 3 yuan this year, the retail price has not fallen but has risen. When the import price in March last year was 3.98 yuan, the retail price It was 16.89 yuan; when the import price fell in January this year, the retail price rose to nearly 18 yuan, which shows that the criticisms of the above are not unreasonable.

Lack of competition in the fuel market

However, the price of oil in Hong Kong is extremely expensive globally and is accelerating to slow down. It is not the only concern today. In the 2017 auto fuel market study published by the Commission, although it did not assert that the Hong Kong fuel market was a "collusive pricing" monopoly, it also pointed out that the unique structure and behavioral characteristics of the industry hindered competition-the industry structure refers to The market is highly concentrated in several fuel retailers, high barriers to entering the market and expanding business, similar cost structures, and only a single gasoline product supply; but the behavioral characteristics are that it does not pay attention to price display, focuses on discounts and discounts, and has few prices Change with time or region.

Perhaps it was officials who did not have the courage to be arrogant. When the competition committee issued a report that year, Hu Hongyu once thought that this move could exert pressure on the government and indirectly force oil companies to disclose information. Three years later, she was about to resign and placed the blame on the government, thinking that the government had more information, so the market failure had to be adjusted by the government.

Even if the phenomenon of the accelerated slowdown of retail oil prices will cause discussions whenever the international oil market plummets, the Hong Kong government will use a mechanical reply to justify laziness. "Under the operation of a free market economy, the government does not intervene in the fuel industry or set price levels for them as much as possible. The government's job is to ensure reliable fuel supply, maintain market opening and eliminate barriers to market entry, while increasing fuel product prices The transparency allows consumers to make choices to promote competition. "However, in addition to the goals of" not interfering as much as possible "and" to ensure the reliability of fuel supply "has been achieved, I believe that the Government's dereliction of duty is self-evident.

Five recommendations of the Commission

In fact, the Competition Committee had already made five recommendations as early as 2017, hoping to increase the market's competitiveness, including the reintroduction of 95-octane gasoline to provide cheaper product choices; the introduction of more gas station sites to reduce market entry And the threshold for expanding business; reviewing the tendering system for gas station sites; clearly displaying the price of plates and discounts at retail outlets; and exploring different "structural" reform options, such as providing reasonable warehouse facilities for docks to allow new operators to import fuel, but ultimately But it cannot be eliminated under the fundamentalism of "free market".

Although the trend of retail oil prices in Hong Kong clearly violates the law of supply and demand, whether this is the result of "parallel pricing" or "collusive pricing" is still controversial. Because the retail price of fuel retailers is often the same and the pace of change is the same, usually when an oil company adjusts its retail price, other companies will adjust in the short term. However, such "parallel pricing" market behavior does not necessarily constitute collusive pricing. Instead, to prove anti-competitive behavior, the authorities need to prove that there is an agreement between competitors or empirical evidence of a coordinated practice. Therefore, whether it is the report of the early years of the competition committee or the Monday meeting, how to obtain the oil company's "sensitive information" forensics is the core dispute.

Apart from the above five policy recommendations, some Legislative Council members have suggested that the regulation of the electricity market can be followed to introduce profit control. However, it can be seen from the two electricity tariffs and the MTR fare adjustment mechanism, how to avoid the "addition and deduction" mechanism It becomes "additional and non-subtractive", and ultimately depends on how the details are finalized. More importantly, the accelerated slowdown of retail oil prices is due to the fact that oil companies refuse to provide "sensitive information" to members of the competition on the grounds of sensitive information, so that the controversy between "parallel pricing" and "collusive pricing" will continue to be sacrificed. Consumer interest. Since the government set up a competition committee "to prevent, restrict or distort competition in Hong Kong", why should it be shirtless with insufficient power?

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01 point of view

Opinion of the Petroleum and Gas Station Competition Committee 01