An analysis of the retail price elasticity of demand for a leading fuel company

Abstract

In this paper the case that the retail petrol elasticity of demand within South Africa is becoming more elastic has been argued, in order to assist fuel companies with future strategic decision-making. The dissertation addresses the market forces that influence elasticity of demand and the determinants for elasticity of demand. Research has been done on the analysis of the retail price elasticity of demand for one of the leading petrol companies in South Africa. The author has provided a theoretical overview of some of the different market forces as well as a summary of selected prior studies that were done on price elasticity of demand for petrol. Empirical research has been done by means of a survey questionnaire that was designed for the purposes of this study. The main determinants of price elasticity of demand for petrol as well as the impact that these determinants have on petrol elasticity of demand have been investigated as part of the empirical study. The results from the statistical analyses have been used to conclude if the petrol market is elastic within South Africa. The empirical research shows that consumers are changing their lifestyles related to the usage of petrol in order to reduce money spent on petrol purchase. The main variables that consumers consider when buying petrol, which include, price, location, price and brand are also analysed as part of the results. The study also concludes that at R10 per liter for petrol, consumers become absolutely price sensitive. The empirical research of this study has shown that even though it is evident that there are elements of elasticity creeping into the market for petrol demand, the study's outcome is inconclusive to deem the entire South African petrol market elastic. Further research needs to be conducted to obtain conclusive results of retail price elasticity in South Africa.