It comes to no surprise that Deco (the major Portuguese consumer association) is calling for a boycott on gas, during the next few days. It is a natural reaction, on the face of the latest developments on gas prices (see … for a quick analysis). Still, its effect shall probably be very limited:
- The refered boycott, is scheduled to take place only on Saturday. So it will have a very limited effect on major gas companies’ revenues. The income that will not happen on Saturday will simply move forward to Sunday or anticipated to Friday;
- That comes as, essentially, there is no real alternative to gas in the Portuguese individual transportation market. People move essentially by car, and I would say that 99.9% of all cars have gas as their main source of fuel and power. So, again, if you use it but don’t buy it to restock of fuel, you will simply do it on another day. And consumers can’t expect to extend the protest, because gas is nowadays a first need good so… people will buy it after a (short) while. In the end of the month, this boycott will not affect companies revenues at all;
- And it will not affect the companies, because, they operate essentially in a duopoly. Even if one of the minor competitors launched a price war, trying to enhance on the media attention on it, it would have a limited impact. It is the two big players that count on this war, and we have already seen that they both maximize their profits by shadowing each other moves. So, if Galp doesn’t decrease its prices, then Repsol will not do it neither.
I am not claiming that this will not have an impact on gas prices on the country. Probably, Galp will marginally decrease its prices and Repsol will follow, allowing both sides (gas companies and Deco representing the consumers) can claim victory. But, and again, the only real way to change this comfortable price position from the companies would be to boost competition. And that asks for a clever government intervention, easing fusions between minor players, reconsidering on gas concessions for the two major companies (forcing them to sell stores) or making the market attractive enough for a new player to enter in (not very plausible). If this isn’t done, then the market will keep playing as it is. To maximize revenue and company’s profit by playing at high parity prices.
- The refered boycott, is scheduled to take place only on Saturday. So it will have a very limited effect on major gas companies’ revenues. The income that will not happen on Saturday will simply move forward to Sunday or anticipated to Friday;
- That comes as, essentially, there is no real alternative to gas in the Portuguese individual transportation market. People move essentially by car, and I would say that 99.9% of all cars have gas as their main source of fuel and power. So, again, if you use it but don’t buy it to restock of fuel, you will simply do it on another day. And consumers can’t expect to extend the protest, because gas is nowadays a first need good so… people will buy it after a (short) while. In the end of the month, this boycott will not affect companies revenues at all;
- And it will not affect the companies, because, they operate essentially in a duopoly. Even if one of the minor competitors launched a price war, trying to enhance on the media attention on it, it would have a limited impact. It is the two big players that count on this war, and we have already seen that they both maximize their profits by shadowing each other moves. So, if Galp doesn’t decrease its prices, then Repsol will not do it neither.
I am not claiming that this will not have an impact on gas prices on the country. Probably, Galp will marginally decrease its prices and Repsol will follow, allowing both sides (gas companies and Deco representing the consumers) can claim victory. But, and again, the only real way to change this comfortable price position from the companies would be to boost competition. And that asks for a clever government intervention, easing fusions between minor players, reconsidering on gas concessions for the two major companies (forcing them to sell stores) or making the market attractive enough for a new player to enter in (not very plausible). If this isn’t done, then the market will keep playing as it is. To maximize revenue and company’s profit by playing at high parity prices.
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