Gas prices and price gouging

News from Pensacola | September 1, 2005 | "Blueberry12"

[blueberry12]

In the aftermath of Hurricane Katrina, gas prices have soared at many locations. In Katrina's path of ruins, prices have risen almost a dollar overnight!

Recently in Atalnta, one gas station was asking 5.36 for a gallon of regular unleaded! Premium was selling for more than 6 dollars a gallon!!!

They did this, because GAS SHIPMENTS WERE DELAYED and a lot of people wanted gas. Had they sold a gallon for 2.70, they would have run out almost immediately. But because they raised the price, everyone who desperately needs gas will be able to buy a little.

However, people are furious over these prices in Atlanta, and chances are they are going to make a law that prohibits price gouging just like the law here in Florida which prohibits anyone from charging more than 10% during times of desperate need.

Before every major hurricane, long lines are standing at the gas stations, and soon, gas stations close as they run out of fuel one by one throughout the area. As soon as people spot a hurricane or tropical storm coming toward the Gulf of Mexico, they raid the gas stations. And some people who are late, can't get any gas.

I think the Atlanta gas station didn't do any wrong by raising the price; because as a result of higher prices, people did not raid the gas station, thus fuel was sold EXCLUSIVELY to those who needed it the most.

But unfortunately, this sort of logic is not common in America. All I hear from everyone is that this is cheating.

But I think it is not cheating at all. People should have the right to offer their properties and belongings for sale at ANY PRICE. And since we are talking about gas stations, their owners should be allowed to charge whatever amount they want to charge. If they want to charge 10 dollars for a gallon, then they should have the right to do it, because the fuel is their property.

But I have heard bad language and fury even in the radio. They said this gas station owner is cheating -- he is a thief, a crook, etc... Even some of my friends had bad comments. I just cannot understand these people.

They are not realizing that they are building the foundation for communism and tearing down capitalism by calling the gas station owner a theif.

How come a gas station owner has no right to sell his goods for whatever he wants to charge? This is insane.

I wouldn't care if a gas station decided to sell gas for $1000/gallon here in Pensacola. It wouldn't bother my at all. We would travel a mile and buy gas somewhere else! We would even travel 100 miles and buy gas in an another state if we had to. But who loses? Certainly not we. The only one who loses is the gas station that tries to sell gas way above the market value. They would have two options: Lower the price and charge the same what others charge, or keep the high price. If they hold on to the high price, they won't be able to sell the gas, and they will go out of business. So, they only hurt themselves by keeping the high price.

Higher gas prices which we call "price gouging" is really not a dirty business. It is a normal thing that happens in a free market. The advantage of higher prices is long-lasting supply. The disadvantage of price controls and prohibition of price gouging is empty gas stations.

We have felt the disadvantages of price controls first hand when Hurricane Dennis came to Pensacola. We did not buy gas soon enough, and both of our cars were empty when the hurricane hit. We had to make a business trip somewhere, and we had to postpone it, because we didn't have any gas. Back in those days, the price of gas was 2.31, and there were mile-long lines at the gas stations. None of the gas stations had gas in the city.

We wouldn't have been able to leave town even if we wanted to.

There is a category 5 hurricane in the Atlantic Ocean which is called Communism. The entire earth is covered with ruins, because of it. This storm never dies, and the news doesn't talk about it. We got used to it, I guess. But it's coming toward the US VERY SLOWLY but steadily.

[darkwing104]

Smart move. Not to mention, why on earth would you sell something for $3 now when you can reasonably expect to sell it for $4 in a week.

It is a smart move because most people don't have long term memory on stuff like this. This situation I observed panic buying get out of hand based on unsubstantiated rumors via callers to local talk shows. This incident will make a great course of study for economics classes. Now, I can understand why democrats can get away with anything in large cities, most of the people who live there are like lemmings.

[Veritas et equitas ad Votum]

Karl Marx would be proud of a country whose government passes laws designed to make sure that the distribution of goods goes not to those who can pay the market price as determined by supply and demand, but instead to those who "need" them the most (as determined by _____ ).

[SierraWasp]

Your convoluted reply just left me numb!!!

[Protagoras]

Those who can afford it most and those who need it most are two very different things.

From those according to their means to those according to their need.

[Terabitten]

Karl Marx would be proud

Yep, I'm a commie. Damn! Caught again!

[CSM]

Thanks for the follow up and clarification. Just as a reminder, in #88 you said: "Plus, I've never taken advantage of my customers during a national crisis."

From the sounds of it you have good reason to not have had to pass along a price increase to your customers. It doesn't sound like you have had to deal with scarcity and reallocation of resources to a disaster area.

As a result, I can conclude that the difference between you and me is that you feel the gas stations are "taking advantage of customers in a crisis" while I feel that a limited resource with supply interruptions are being priced accordingly.

I don't dispute the potential harm to our overall economy, but that is a result of a natural disaster, not necessarily the gas stations.

[CSM]

You mocked wideawake's cost analysis of getting the ice truck to the people of New Orleans. Your mocking centered around the statement that if business was that difficult, then new businesses would fail to open. Well, you were proposing that ice be sold to people that have been the victims of a natural disaster. Since you didn't buy in to the difficulties presented by wideawake, I figured you might be able to point to several examples of businesses that have opened in NO.

Or, is it tremendously difficult, if not impossible, to open new businesses in NO right now causing a cost model that is making it not even feasible to take the risks?

[wideawake]

I've never heard of people running businesses to generate revenue. I always thought it was about profit.

It's obviously about both. Would you prefer to make a 100% profit margin on $1 of revenue or a 2% profit margin on $100 of revenue?

Thus, the entire concept of gouging is a socialist concoction into which you have apparently bought.

I'm not sure where you came into this discussion, but I have been arguing against false accusations of gouging all thread.

But hey, maybe you and Karl Marx are correct while Walter Williams and I are not...

Find one Marxist statement I have made on this thread, or apologize for insulting me.

[Protagoras]

I think that poor soul is a tad confused.

[commonerX]

"""Your convoluted reply just left me numb!!!""" con·vo·lut·ed [ kónvə ltəd ] adjective Definitions: 1. extremely intricate: too complex or intricate to understand easily convoluted sentences 2. very twisted: having many twists, coils, or whorls the brain's convoluted surface Which definition of the word are you referring to. Because 1. This is a complex problem with intricate aspect to it, not just simple a supply and demand issue. 2. I didn't know I was to keep it simple.

[BurbankKarl]

http://www.atomfilms.com/contentPlay/shockwave.jsp?id=cant_afford_gas&preplay

play this..its great

[bvw]

Thank G-d for Price Gouging! You gave an excellent example.

[wideawake]

Apparently you've never heard of the Great Exercise Shortage of '01.

[nevergore]

Yeah...but what about the part that you are really a Palestinian Arab?

Besides, sometimes you have to take things at face value.....The point of the argument was never my ownership in business but overall corporate responsibility, ethics and social responsibility in business.

I believe there is a balance. Example, some people would never do anything illegal in business because they are afraid of being caught, others because they realize that inpropriety is bad for business in the long term.

Take this one step further, would you do something immoral, but not illegal, if it profited your business? The short term financial impact may be great but the long term problems associated with these type decisions will almost certainly impact you business negatively in the long term.

NeverGore :^)

[wideawake]

So, in my hypothetical example, was the gas station proprietor immoral to charge a 40% markup?

Again, what would the moral markup on his gasoline be in that instance?

[drlevy88]

Do you believe all the chaps here who say they are in the oil business, because they talk a good line? You need to get their IRL identities and find out if they are in the corporate directory, and if so they are there at the level they state, you know.

[babyface00]

So you are saying that the station guy makes money in anticipation of a cost increase which may never happen to the extent he "guessed" and then when the price goes down[slowly, as you note] he makes more money trying to anticipate the next rise maybe on the same tank of gas

Yes and no. He makes money in anticipation of a cost increase only if

1) he prices his gas high enough to pay for the next refill and a little more and

2) he prices his gas low enough that customers will actually buy it.

The key is, he doesn't know what is (actually, was) high enough until the truck driver fills his tank and hands him an invoice, to which he has to pay cash. His only clue is experience, and the prices of his competitors, who are all filling up at different times of the week/month as they go through their stocks. He can call his distributor daily and get a quote, but gas fluctuates so quickly that the invoice is actually printed by the delivery truck driver right as the delivery is complete. Until that driver fills his tank and hands him the invoice, the station owner has no definite idea what his gas is going to cost him.

The only way he makes money on both sides of the same tank is if the above is true and he guesses so wrong that gas costs either stay unexpectedly stable or go in the opposite direction. It would be one of the few times where a serious cost estimation mistake actually benefits him. However, keep in mind that all of his competitors are going to be anticipating the same declining costs, so the first guy with the tank full of cheap gas is going to be the one with the expensive gas as prices continue to drop and his competitors start getting in tankfuls of cheap gas. He might be able to make a higher profit while still pricing below his competition for a couple of days, but soon others will be getting new gas even cheaper than what's in his tank, and dropping their prices to try and pull those customers back. If he can get any extra margin in that time period, it won't last very long. To further complicate things, if prices fall fast enough, he won't even be able to cover the cost of the gas in his tank because his competitors will be able to price their gas below what his costs were.

What makes it all the more interesting - he doesn't know if he made any money until his next delivery.

In other words, assuming a monthly delivery for simplicity and a rising cost, the gas he has in his tank in June is sold based on what he expects the costs in July to be. When he has sold all his July gas and gets his August delivery, then he'll know if he made any money in July selling the gas he received in June at the a price based on what he expected his August cost to be. Deliveries can be more frequent than per month and the station adjusts prices as frequently as possible, not on a monthly average but that gives an idea of what sort of thinking has to go into managing a station.

Another factor to complicate the mix is that he never has a full tank, except right after his delivery. So he may have to amortize his anticipated price increase over a nearly full tank, or he may have to do it over a nearly empty tank. With the former, his price will rise about the same as his anticipated cost rise. With the latter, he may have to cover a cost increase over 18,000 gallons (his next anticipated fill up) with a price increase over 2,000 gallons (what he thinks he'll sell until his next fillup). This is likely what's driving the $5/gallon prices in Georgia and this is where stations can really lose their shirts if they expect prices to rise sharply, but they don't have much gas in their tank to sell until they get their next delivery.

Everyone in his market has pretty much the same access to the same limited information. The variables from station to station are the profit per gallon required to cover their expenses, the amount of side businesses to provide a cushion, and the amount of gas in their tank at any given time on which to base their pricing vis-a-vis their anticipated cost. The rest is a pretty high-stakes gamble. The faster they react, within market constraints, to anticipated costs, the better chance they have of maintaining profitability. On the flip side, the slower they can maintain prices as the market falls, the better chance they have of maintaining profitability. But typically, no station has all that much wiggle room.

The best market for stations and consumers alike is one that is very stable. When that happens, prices among stations will tend to equalize, and margins per gallon can actually shrink once station owners are confident they have enough previously-accumulated profit cushion to cover themselves in case of an unlikely sudden rise or fall. When that happens, you get a situation like that of the 50s, where stations have to offer things like spiffy attendants and giveaways to entice you into their establishments because everyone is paying/pricing gas the same and maximizing efficiency to help cut their required margins.

[ChefKeith]

They said this gas station owner is cheating -- he is a thief, a crook, etc...

The owner is only an extension of the oil companies/politicians (rockefellers, etc.)

Just paid $2.98 a gallon in central Texas a few hours ago, up $.60 a gallon from yesterday.

[nevergore]

Again? Hokay!

Hold the standard margin percentage as a fixed profit during a crisis....thus if they had a standard 10% and were buying gasoline at $2.00/gal they would continue to charge the $2.20/gal until their supplies ran out. If the new gas came in at $3.00/gal then they would charge $3.20/gal until the state of emergency was over....then let full free market reign again...

This gives the owner the same margins he built his business on.

However, this should be voluntary not dictated by the government.

I still think the "ice thing" would work for you.....just without the helicopters.....put a cow catcher on the truck and kinda plow you way through...

NeverGore

[EggsAckley]

Safeway started yesterday at $2.85, two hours later went up to $3.01, and now today it's $3.11. Fortunately I've never bought gas from them, and never will.