What Drives Petrol Price Dispersion across Australian Cities?

Abstract

Petrol directly impacts the ability of and extent to which households can engage in day-to-day activities and ultimately directly influences the aggregate economic activity. Petrol price increases can lead to major economic disruption, especially among the most vulnerable, such as low-income families. In Australia, petrol prices differ substantially between metropolitan and regional areas, and regional drivers must pay more for purchasing petrol than those in capital cities. This research explored why retail petrol prices vary from one city to another within and between Australian regions. In this study, clustering methods and panel models will be used to identify factors that cause price differences. The findings revealed that a considerable part of the price differences arose from specific characteristics of cities that influence the demand and supply of petrol, thereby causing variations in price decisions. Petrol prices were substantially influenced by wholesale petrol prices, oil prices, petrol and diesel vehicles, population density, station density, and public transport accessibility. These factors are the main determinants that contribute significantly to price variations between Australian cities. The findings provide critical information for economic agents that interact in this market. From a social welfare perspective, government authorities can consider these factors to improve living standards and consumers’ welfare under price pressure in regional cities.