June 27, 2000
Fuel Fax – Gasoline Price Monitor: Atlantic Edition
Regulation – The AIMS View
By Brian Lee Crowley
Had Winston Churchill been an economist, he might well have said, “Competitive markets are the worst form of consumer protection – except for all others.”
After all, the recent rapid rise in gasoline prices has reinforced the impression of many that oil companies can dip into the consumer’s pocket at will. And the undeniable pain that these price increases have caused is a potent magnet for every demagogue in town. It is so easy for politicians to promise to “do something” in response to consumer distress, and so easy for the driving public to clutch at such straws.
But if the “something” that is proposed is for bureaucrats to regulate gasoline prices, then we have to examine the evidence about whether that’s a good idea or not. After all, gasoline price regulation has an historical track record compared to markets. Until a few years ago, prices were regulated in Nova Scotia, and they remain regulated in PEI to this day. How do consumers fare under regulation?
Poorly. People focus on the fact that prices on PEI have been slow to follow the recent price rises imposed by OPEC’s restriction of world-wide production, forgetting that Island prices are just as slow to fall when international prices decline. The experience was similar in Nova Scotia. Just think how long it takes to get anything done when governments get involved – how long it takes to get a school built, or a permit issued or a hip replacement operation. Regulation is ponderous, it moves at the pace of government, not the real world.
As a result, average prices, what consumers pay in total over the long haul, are higher in PEI than in deregulated provinces. With the brief exception of the Gulf War period, Prince Edward Islanders consistently paid higher gasoline prices (net of taxes) than consumers in comparable places in Atlantic Canada between 1991 and mid-1998. An independent study of 19 gasoline markets in Canada by Michael J. Ervin and Associates of Calgary concluded that, “Charlottetown has perhaps the consistently highest ex-tax pump price of any urban market in Canada.” Today’s experience, where the lethargy of regulation briefly appears to benefit consumers should be seen for what it is: the exception that proves the rule.
The experience under regulation was the same in Nova Scotia. And when that province deregulated in 1991, prices fell in line with the lower averages in comparable cities, and have remained there ever since.
And it is not only consumers who pay. Local businesses that have to buy, transport and sell gasoline in regulated jurisdictions have to deal with forces far beyond the reach or influence of provincial regulators. OPEC leaders don’t listen to US Presidents, so
they hardly quake at the disapproval of a Canadian provincial premier. That means that when regulated prices don’t rise quickly enough to keep pace with real world price movements, the only people who get squeezed are those under provincial control. Not the
multinational corporations, in other words, and certainly not governments, who take about half the price of gasoline in taxes. No, the people who suffer are the local distributors and gas station owners.
A plethora of government, industry and academic studies have all concluded that there is no evidence that gasoline markets are rigged against consumers. Instead, they found that the margins of the people shipping, refining, distributing and retailing gasoline are razor thin, and under strong competitive pressure downwards. That, and not prices dictated by bureaucrats, is what best serves the interest of consumers in the long run.
Brian Lee Crowley is the President of the Atlantic
Institute for Market Studies, a Halifax-based public
policy think tank. He can be reached at
[email protected]
