Alternative Retail Pricing for Petroleum Products
An Alternative Retail Pricing Policy for Petroleum Products: A Case Study of Gasoline and High Speed Diesel in Thailand
Thiraphong Vikitset
School of Development Economics
National Institute of Development Administration
118 Seri Thai Road, Bangkapi District, Bangkok 10240, Thailand
E-mail: thiraphongv@yahoo.com.
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Abstract
This article examines the retail pricing policy of gasoline and high speed diesel in Thailand. The pricing policy of these two products is characterized by cross price subsidy from the gasoline consumers to the high speed diesel consumers.
The cross price subsidy leads to welfare losses and increases in economic costs of these two products. An alternative retail price structure of gasoline and high speed diesel which generates the desired amount of revenue and yet minimizes the total welfare losses and lowers their economic costs is proposed in this article. Keyword: Thailand; pricing policy; gasoline; high speed diesel; welfare; economic cost
JEL: classification code: H20, H21, Z0
ACKNOWLEDGEMENT
The author would like to thank Dr. Vichit Lorchirachoonkul,
Dr. Praipol Kumpsap, and Dr. Yuthana Sretapramote for their valuable comments.
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I. Introduction
Gasoline and high speed diesel are the two major petroleum products that are consumed mainly in the transportation sector in Thailand. Gasoline is sold as gasoline with octane 91 and gasoline with octane 95. The consumption of all gasoline accounts for about 20 percent of the total petroleum products consumption during the period 2002 through 20051. The high speed diesel consumption constitutes between 44 and 47 percent of the total petroleum products consumption in Thailand during the same period. The consumption of gasoline and high speed diesel thus accounts for about 67 percent of the total petroleum products consumption in Thailand.
The wholesale prices of gasoline and high speed diesel have the same following structure wholesale price = ex-refinery price +
Thiraphong Vikitset
School of Development Economics
National Institute of Development Administration
118 Seri Thai Road, Bangkapi District, Bangkok 10240, Thailand
E-mail: thiraphongv@yahoo.com.
2
Abstract
This article examines the retail pricing policy of gasoline and high speed diesel in Thailand. The pricing policy of these two products is characterized by cross price subsidy from the gasoline consumers to the high speed diesel consumers.
The cross price subsidy leads to welfare losses and increases in economic costs of these two products. An alternative retail price structure of gasoline and high speed diesel which generates the desired amount of revenue and yet minimizes the total welfare losses and lowers their economic costs is proposed in this article. Keyword: Thailand; pricing policy; gasoline; high speed diesel; welfare; economic cost
JEL: classification code: H20, H21, Z0
ACKNOWLEDGEMENT
The author would like to thank Dr. Vichit Lorchirachoonkul,
Dr. Praipol Kumpsap, and Dr. Yuthana Sretapramote for their valuable comments.
3
I. Introduction
Gasoline and high speed diesel are the two major petroleum products that are consumed mainly in the transportation sector in Thailand. Gasoline is sold as gasoline with octane 91 and gasoline with octane 95. The consumption of all gasoline accounts for about 20 percent of the total petroleum products consumption during the period 2002 through 20051. The high speed diesel consumption constitutes between 44 and 47 percent of the total petroleum products consumption in Thailand during the same period. The consumption of gasoline and high speed diesel thus accounts for about 67 percent of the total petroleum products consumption in Thailand.
The wholesale prices of gasoline and high speed diesel have the same following structure wholesale price = ex-refinery price +