The Petroleum Products industry is characterized by strong forward and backward linkages, making it an important industry in the Australian economy. However there is a great disparity in prices in this industry between capital and regional cities. This thesis will discuss the Petroleum Products industry and will discuss the determinants of price in this industry, by testing whether price discrimination exists, or if the disparity is a result of an oversupply of retail sites. Also, this thesis will discuss the impact of deregulation, and test whether it has led to a decrease in prices.
While the price elasticity of demand in capital and regional cities is different, it does not necessarily follow that price discrimination exists, however given the behaviour of the oil majors it is likely that this fact is exploited to some extent. The disparity in prices is also influenced by the oversupply of sites in regional centres. The deregulation of the industry appears to have resulted in a significant reduction in prices, but how long this will last can not be accurately estimated.