PETRONAS
was incorporated on 17 August 1974 as the national oil company of Malaysia,
vested with the entire ownership and control of the petroleum resources in the
country. In another words we call PETRONAS as a government-owned corporation. In
this case, we can say that PETRONAS sets the price of the petrol. This is
because PETRONAS provides oil and petroleum and gas to our country. The current
key person in PETRONAS is still Tan Sri Shamsul Azhar Bin Abbas, as the Group
CEO and also the President for the PETRONAS Company. They are also given
responsibility to develop and add value to these resources (PETRONAS, 2012). In
fact in 2012, PETRONAS is renowned as one of the 500 biggest corporations in
the world by Fortune (Fortune Global, 2013). This statistic shows how powerful
they are and where they stand, not only in the Malaysian market but globally as
well.
Demand
in economic terms is defined as the desire and degree of willingness of a
consumer to pay for a particular goods. The quantity demand of PETRONAS’s
petrol can be illustrated by build-up a demand curve and understood through the
aids of a demand schedule. According to the law of demand, when the price of
PRTRONAS’s petrol rises, the demand of PETRONAS’s petrol will falls. (Sloman, Wride
and Garratt, 2012). Based on the statement mentioned above, it can be concluded
that there exists an inverse relationship between the price of PETRONAS’s
petrol and quantity of the PETRONAS’s petrol. Supply on the other hand is how
much producers of PETRONAS’s petrol can provide and how willing they are to
sell their petrol at a specific price, given that other factors are held
constant (Sloman, Wride and Garratt, 2012). Additionally, supply can be
illustrated by constructing a supply curve and understood through supply
schedule. The price of PETRONAS’s petrol is relative to the quantity of its supply.
The higher the price of PETRONAS’s petrol, the higher the supply as it is now
more profitable to the sellers and suppliers. So, when the quantity demand of
PETRONAS’s petrol is equal the quantity supply of PETRONAS’s petrol, the market
equilibrium price of PETRONAS’s petrol will occurs.
But sometime other
determinants of demand will influences the quantity of demand even the price is
remain the same such as the prices of related goods, expected future prices,
preferences. Thus, the goods provides by PETRONAS is a complement goods for
vehicle. Complement goods is a goods that is used in conjunction with another
good. Therefore, when the price of vehicle is increased, the demand PETRONAS’s
petrol will decrease even the price is constant because people might tend to
take public transport rather than buy an own car. Hence, the more people take
public transport the more petrol is saved, it will affect the demand of
PETRONAS‘s petrol drop and the demand curve shifts to leftward.
Furthermore, when the
expected future prices of PETRONAS‘s petrol will be raise, the currently demand
of PETRONAS‘s petrol will increase obviously and the demand curve will shifts
to rightward. For instance, on 2 September 2013, the buyers know that the RON
95 and diesel will go up by 20sen per litre at midnight so most of the car
owner go queening and refuel their cars, it made the demand of PETRONAS‘s petrol increased. And then,
preferences of consumers is one of the main factor to influences the demand of
PETRONAS‘s petrol as well. For an example, the consumers is like and loyalty to
the PETRONAS’s competitors which is Shell, it will affect the demand of
PETRONAS‘s petrol decrease and the demand curve shifts rightward.
For the curve of quantity of supply, it will shift
to leftward or rightward when influences by other factors such as expected future
prices, technology, and the number of suppliers. For an example, if the
technology to produce the petrol is better than previously, expected future
prices will falls and when the larger the number of suppliers of the PETRONAS‘s
petrol, the supply of PETRONAS‘s petrol
will raise.
Moreover,
the demand for PETRONAS’s petrol would now remain fairly inelastic demand as
petrol has considering one of the most necessary important of goods in the
world. Price elasticity of demand is a measure of the relationship between a
change in the quantity demanded of a specific good and a change in its price.
At the same time, Price elasticity of demand is a term in economics often used
when discussing price sensitivity. Petrol is considering necessary goods for
people who own a car. Therefore, the Price Elasticity of Demand for PETRONAS‘s
petrol is fairly inelastic products because petrol is not a renewable source
hence it would exhaust one day and every owner of vehicles needs to use petrol
to function their vehicles unless it is a hybrid car. Since the hybrid car is
not really active in Malaysia's market, so even the price of petrol keep
rising, the consumers still need to buy and refuel petrol for their vehicles. The
figure 5 shows the price increases but demand does not change much or decrease
obviously. Therefore, as it is a fairly inelastic demand for PETRONAS‘s petrol
so that buyers paid more taxes than sellers.
According
to my research, that is only few petrol stations in Malaysia. Generally, they
are considering as few small numbers of large size firms that are doing the
same business which are competing with each other in a market such as Shell,
Esso, PETRONAS, BP, and Mobil. These petrol stations are running exactly the
same market structure, which is oligopoly market structure. Therefore, we know
that PETRONAS is an oligopolistic firm. In addition, firm oligopoly is a market
structure that can set the price as known as price maker and the freedom of
entry is restricted. The huge amount of manufacturing costs, expensive material
costs, and also from the government regulations is the reasons why barrier of
entry would block. (Betsy, 2012) If a group of oligopolistic firms get
together, or we call it as collude and together they set all prices including
judicial output to maximize profits with those who called as a cartel. In
general, the “cartel” which means that several large firms are together and
create a formal contract or agreement in certain decisions to get control over
the market. However, in Malaysia, it is not the same. Although petrol stations
in Malaysia are oligopolistic firms, but they don't get along and not collude
even if they sell the homogeneous products, so they are unable to dominate the
market by setting the price they want. They just set the same price that set by
the Government. This is because, only the Government has the right to set the
prices of all petrol stations in Malaysia included PETRONAS’s petrol station to
comply with or in other words we can say that the Government set a price
ceiling and floor price to be followed by the firms of petrol stations. By
setting prices, it will help to maintain the equilibrium point to avoid shortage
and surplus. Basically, the purpose of the price ceiling that the Government
set is to prevent the sellers charge the price higher than that. Otherwise, the
price floor set by the Government is to ensure the seller will not set lower
the price.
The
diagram above shows the price ceilings and price floors similar to how the
Government set price for petrol in Malaysia. Fixed price floor is to avoid
petrol firms charge lower than the minimum price that set by Government. The
shortage will happen when petrol prices in undercharged. Next, a price ceiling is
important for a country market. This is because, the price ceiling set at a maximum
price for the market. Otherwise, without price ceiling, suppliers will provide more
petrol and eventually this will lead to surplus of petrol in the market, as
each of the firm’s target is to maximize their profits. Surplus is happen when
the price is higher, the firm will tend to provide more petrol to achieve the
highest profit. Therefore, the Government had set a price ceiling for agreeing
by all petrol stations to prevent supplier from being overcharged.
However, after the government paid subsidise on
PETRONAS’s petrol, the market equilibrium prices are falling from the original price to lower price
and the amount of market equilibrium quantity supply and demand will be
increase at the same time, it would be more affordable for consumers to
purchase the PETRONAS’s petrol.
According to Figure 8, the price ceiling is set at
RM1.90, so the maximum price that PETRONAS’s petrol able to set is only at
exactly RM1.90.
In
conclusion, the price of petrol is very sensitive for a country because once
the price of petrol in the country keeps increasing, the transportation fees
will be increase and it would happen inflation in the country. Inflation occurs
because most of the goods in the market need transportation to deliver their
goods to other place. That is the main reason that government join into the
petrol market.
References
list
Anon.,
2013. Ranking the brand. [Online]
Begg, D., 2009. economics for business. 3rd ed.
Berkshire: McGraw Hill Education.
Gillette, B., 2013. Innovation America’s Journal of
Technology Commercialization. [Online]
Available at: http://www.innovation-america.org/competition-vs-barriers-entryAnon.,
Available at: http://www.innovation-america.org/competition-vs-barriers-entryAnon.,
Jackson, J., 2012. Microeconomics. 9th ed.
Australia: McGraw Hill.
Sloman, J., 2012. Economics. 8th ed. Edinburgh:
Pearson Education Limited.
2012. Petronas. [Online]
Available at: http://www.petronas.com.my/Pages/default.aspx
Available at: http://www.petronas.com.my/Pages/default.aspx
