Abstract:
Have you ever driven past a servo in the morning, then looked again at lunch to see the price soared by 30/40 cents? Even more so, you might have noticed when the fuel jumps so high, the next day the station down the road will do just the same. We strive to investigate this big spatial game… let’s see what can we find out?
Fuel Prices in (some) Australian Capital Cities
Have you ever driven past a servo in the morning, then looked again at lunch to see the price soared by 30/40 cents?
These dramatic spikes aren’t limited to one city; they happen in Brisbane, Sydney, Melbourne, Perth, and Adelaide – though each city’s cycle length can differ. Perth, for example, famously times its “cheap fuel” around Tuesdays because its cycle neatly fits into a weekly pattern.
Video link to come
For my research, I’ve been looking into these cyclical price movements across Australia’s major cities. To illustrate, I created a time-lapse map of Brisbane stations so you can watch, in quick succession, as one station suddenly bumps its price, nearby sites follow suit, and an entire suburb is “lit up” with a spike. Soon after, prices dip again – usually more slowly than they rose – before it all starts afresh.
Why all the ups and downs? A big factor is local competition. When one retailer goes high, others match to keep profits flowing. After a few days, someone breaks ranks by dropping the price to tempt customers. That encourages further cuts, until eventually it bottoms out which sets the stage for the next spike.
To dig deeper, I split each station’s prices into (1) a long-run trend driven by global factors like oil prices and currency shifts, and (2) the short-term “cycles.” The cyclical part is what I’ve been modelling, because it captures that cat-and-mouse game of strategic undercutting and sudden resets. I also measured how strongly neighbouring stations move together, called spatial dependence, and found that one station’s actions quickly ripple through its local area.
Interestingly, these repeated peaks and troughs match up with “Edgeworth cycles,” which economists often explain using the Maskin–Tirole (MT) model of dynamic oligopoly. While the MT model neatly accounts for two firms repeatedly resetting and undercutting each other, adding a third competitor usually disrupts the cycle. This is unless there’s some form of explicit or tacit collusion helping them coordinate those price spikes and falls, pretty interesting hey?
So next time you see prices skyrocket at your local servo, remember: it’s all part of a bigger pattern. If you time it right, you might snag a bargain – or at least feel a bit savvier about what’s going on at the bowser. For the super savvy, you can checkout this ACCC site on petrol price cycles where you can see up to date info on what stage these cycles are up to!
If you’ve learnt something from this and want to learn more about the intricacies and methods used in my research, feel free to look through my report below.
Gurushey Deo
The University of Queensland
