Like the tulips that poke their heads out every spring, the federal gasoline-price conspiracy hunt is a regular visitor once the warm weather arrives. Just as an Easter egg search always ends with candy (and often a stomach ache), the latest gas-price conspiracy inquiry is likely to discover the predictable. Like other urban legends that have been repeatedly proven false, however, this will do nothing to convince those people who truly want to believe.
The federal Competition Bureau said recently that it is conducting yet another investigation into collusion in the gasoline business in Canada, as a result of public complaints about high prices. By now, the bureau must take the same attitude towards such complaints as the FBI does to all those calls about UFO activity in the Midwest: so, Mrs. Jenkins, you saw prices rise by exactly the same amount at the same time at dozens of stations? Yes, of course we'll look into it, ma'am. Thanks for calling.
Or perhaps the bureau uses these inquiries as a make-work project for summer students. The job would be relatively easy: they could just summarize the four other major studies the bureau has done over the past 20 years — not to mention the one the Conference Board did in 2000 — which found no evidence whatsoever of any conspiracy, collusion or price-fixing. Former Bureau commissioner Konrad von Finckenstein, now a federal court judge, told a House of Commons committee doing its own gas investigation last year that Canada has some of the lowest gas prices in the world, excluding taxes.
In all, there have been more than a dozen major inquiries into the gasoline business in Canada over the past two decades — by the federal government, various provincial governments, the Conference Board and industry analysts such as M.J. Ervin — and none have found any evidence of price-fixing. In fact, gasoline is one of the most competitive markets around, for one simple reason: prices, recorded in tenths of a cent, appear in two-metre-high numbers on signs at the corner of every street.
Canada has donut and coffee shops on every street corner too, but they don't post the price of a latte or an apple fritter in two-metre-high numbers. If they did, there might be more of an outcry about how coffee prices always go up and never down, or how stores in different parts of the city charge the same for a double-double. The main reason you don't see the kind of fluctuation in coffee and donut prices that you do in gas prices is that the profit margins in coffee are so high they can absorb almost anything. In the gasoline market, margins are razor thin, so all it takes is a small event to affect prices.
And there has been more than just a small event in the energy markets. Just as it was last year when the Commons committee was investigating, the price of crude is close to its highs for the past decade, a result of terrorism fears and the actions of the OPEC oil cartel, as well as strong demand from China. The committee — which perennial conspiracy theorist Dan McTeague co-chairs — started its hearings in February 2003 and tried to compel the CEOs of Canada's oil companies to appear, gasoline prices fell to below the 50-cent mark in some markets. Did this stop the committee from pursuing its conspiratorial agenda? Not on your life.
In a 1998 investigation, Mr. McTeague came up with a clever way around the lack of evidence that gas retailers collude to fix prices: he said they don't have to, because those huge signs on the street corner allow them to transmit signals to one another about when to raise or lower prices. In other words, the price isn't posted to convince you to patronize a particular station — it's there as a kind of jungle drum, sending a message to other retailers about what price the industry has decided on for the day.
The fact that gasoline prices never stay high for very long — often not even an entire weekend — is the best evidence that collusion isn't taking place, or at least not very effective collusion. In most oligopolies, prices are high and remain so, showing very little fluctuation. Gas prices, by contrast, veer up and down by large amounts, as any gas consumer can attest. This is a symptom of a market with narrow margins. In fact, the markets that most resemble an oligopoly are those in P.E.I. and other jurisdictions which regulate gasoline prices: the price consumers pay is nice and steady, but it is also consistently higher as well.
As Mr. von Finckenstein told the Commons committee last year — and as any number of neutral observers have said over and over — Canada's gasoline prices on average are lower than they have been since 1980 when the effect of inflation is removed. And they are lower than they have been since the 1950s if the effect of rising federal and provincial taxes is removed. When prices were in the 60-cent-per-litre range, more than 45 per cent of the cost was tax in some jurisdictions. If anything, that is the big gasoline-price conspiracy.
© The Globe and Mail
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