Difficult to validate petrol firms' claims

BUSINESSES often attribute price hikes to rising costs ("Petrol companies ordered to explain latest price hikes"; yesterday).

In relation to the price hikes by petrol companies, Shell has said factors such as distribution cost and other operating costs also determine pump prices, besides excise duties imposed by the Government.

But surely, these other costs that affect pump prices could not have increased overnight after the Budget announcement?

It also baffles me as to why all the petrol companies raised their pump prices at the same time to reflect cost increases other than the higher government duty ("Petrol duty up but there's a one-year road tax rebate"; Tuesday).

No business would admit it is profiteering. Businesses can easily get away with profiteering by masking it as a cost increase.

This is because it is very difficult for the Government to validate such claims, given the information asymmetry, especially in a complex industry.

Only businesses themselves know best how their industries operate and have full information about their costs.

In a free market, businesses will typically charge "what the market can bear". We cannot leave it to the conscience of businesses to behave in a fair or ethical manner.

Where a market is dominated by a few large players and lacks effective competition, the Ministry of Trade and Industry (MTI) should be more vigilant in its checks on businesses to ensure that they do not engage in exploitative or abusive behaviour to the detriment of consumers.

MTI should also look into strengthening consumer protection in Singapore, which currently lags behind many other developed countries.

Besides looking after business' interests, MTI also needs to adequately safeguard consumers' interests, especially where there is a lack of effective competition.

A right balance needs to be struck, in line with the Government's push for a country that embraces inclusiveness and collective social responsibility.

Tan Kim Choon (Madam)

This article was first published on Feb 27, 2015.
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