Don Harding of the School of Business at La Trobe University released a comprehensive econometric critique of the ACCC Appendix S analysis (Harding 2008a; 2008b). He argues that the ACCC relied on a nominal price margin when it should have used a real price margin. Specifically, Harding is able to show that once the data are corrected for inflation, ‘it is not possible, based on this data, to say as the ACCC did that the WA FuelWatch scheme did not act to increase the real retail margin for petrol in Perth.’

In the analysis above, like the ACCC, I too have relied on nominal relative prices. Therefore in order to check the robustness of my results I calculate the inflation adjusted average petrol prices in each of the capital cities in constant May 2008 dollars, then recalculate the relative price margin and then re-estimate equations (3) and (4). Consumer Price Index data are published by the Australian Bureau of Statistics on a quarterly basis. I use the quarterly figure for each month within the quarter, but also use the average quarterly petrol price reported by the Australian Automobile Association to provide a further check to the analysis. Results are shown in Table 3.

Numbers in parenthesis are p-values. Standard errors are Newey-West corrected.

Overall, the results are consistent with my previous analysis. The introduction of the FuelWatch scheme into WA had a small effect, if any, while the arrival of Coles had a large effect on petrol prices in Perth relative to the eastern states. It is worth noting that in two of the equations the FuelWatch coefficient is positive (although only statistically significant in one instance), which indicates that, everything else being equal, FuelWatch actually caused prices to rise in Perth relative to the eastern capitals. Not too much should be made of that result, however, as the significance level (p = 0.0967) is very poor.

The net result of the empirical analysis I have conducted is that the ACCC has underestimated the impact of the Coles entry into the WA market. What is particularly troubling is that the ACCC did not report any analysis along these lines in their 2007 report, although they assure the Senate Estimates committee that (a) they had undertaken that analysis and (b) that the Coles effect was small. I have argued the Coles effect is not small and it dominates the FuelWatch effect.