The Manila Times
MANILA, Philippines — The ongoing weekly price adjustment schemes being implemented by oil price companies may lead to "cartelization" in a highly concentrated petroleum market, according to a lawmaker at the House of Representatives. Marikina Rep. Romero Quimbo presided over the House LEAD or Legislative Energy Action Development supercommittee hearing on Wednesday upon the directive of Speaker Faustino Dy 3rd. During the hearing, the ways and means committee chairman raised the concerns on oil prices with Socioeconomic Planning Secretary Arsenio Balisacan in his interpellation. He said that the Department of Energy’s (DOE) synchronized weekly price adjustments may be weakening competition instead of promoting it. "So, lastly, Secretary, can you tell us, what is your opinion on this every Tuesday adjustment that the DOE actually mandates? Do you think it prevents, or does it actually engender, for lack of a better word, the elimination of competition?” Quimbo asked Balisacan. “In Econ 101, Mr. Chair[man], when there are very few players in the markets, and you ask these players, government may be asking them to cooperate, to coordinate, they are actually asking a cartel,” Balisacan said. Under the current system, oil firms adjust prices every Tuesday based on global oil movements in the previous week, with prices recently surging due to the Middle East crisis. Oil companies typically announce price changes ahead of implementation, allowing competitors to see and match each other’s pricing. Balisacan further clarified that coordination risks were inherent in such markets. “What we do know is that the industry is a highly concentrated industry. There are only a few players. And so in Economics 101, you know that it’s easier to coordinate when there are only very few big players. There are opportunities for cartel-like behavior, just like what they have in OPEC (Organization of the Petroleum Exporting Countries),” Balisacan said. He also said that structured or synchronized pricing environments could reinforce such cartel-like behavior. “If in government, for example, if you are asking the players in the market to come to a room, agree on a price, what do you have? That’s how they do in the cartel,” Balisacan added. Quimbo warned that the current system may be producing that exact effect, with firms moving together instead of competing. While the intent to cooperate is "good," Quimbo said that the current system could promote cartelization that is promoted by the government itself.
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