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.

[CSM]

Since everyone is ignoring Sowell's article, I'll post it directly:

---

'Price gouging' in Florida
Thomas Sowell (archive)


September 14, 2004 | Print | Send


In the wake of the hurricanes in Florida, the state's attorney general has received thousands of complaints of "price gouging" by stores, hotels, and others charging far higher prices than usual during this emergency.

"Price gouging" is one of those emotionally powerful but economically meaningless expressions that most economists pay no attention to, because it seems too confused to bother with. But a distinguished economist named Joseph Schumpeter once pointed out that it is a mistake to dismiss some ideas as too silly to discuss, because that only allows fallacies to flourish -- and their consequences can be very serious.

Charges of "price gouging" usually arise when prices are significantly higher than what people have been used to. Florida's laws in fact make it illegal to charge much more during an emergency than the average price over some previous 30-day period.

This raises questions that go to the heart of economics: What are prices for? What role do they play in the economy?

Prices are not just arbitrary numbers plucked out of the air. Nor are the price levels that you happen to be used to any more special or "fair" than other prices that are higher or lower.

What do prices do? They not only allow sellers to recover their costs, they force buyers to restrict how much they demand. More generally, prices cause goods and the resources that produce goods to flow in one direction through the economy rather than in a different direction.

How do "price gouging" and laws against it fit into this?

When either supply or demand changes, prices change. When the law prevents this, as with Florida's anti-price-gouging laws, that reduces the flow of resources to where they would be most in demand. At the same time, price control reduces the need for the consumer to limit his demands on existing goods and resources.

None of this is peculiar to Florida. For centuries, in countries around the world, laws limiting how high prices are allowed to go has led to consumers demanding more than was being supplied, while suppliers supplied less. Thus rent control has consistently led to housing shortages and price controls on food have led to hunger and even starvation.

Among the complaints in Florida is that hotels have raised their prices. One hotel whose rooms normally cost $40 a night now charged $109 a night and another hotel whose rooms likewise normally cost $40 a night now charged $160 a night.

Those who are long on indignation and short on economics may say that these hotels were now "charging all that the traffic will bear." But they were probably charging all that the traffic would bear when such hotels were charging $40 a night.

The real question is: Why will the traffic bear more now? Obviously because supply and demand have both changed. Since both homes and hotels have been damaged or destroyed by the hurricanes, there are now more people seeking more rooms from fewer hotels.

What if prices were frozen where they were before all this happened?

Those who got to the hotel first would fill up the rooms and those who got there later would be out of luck -- and perhaps out of doors or out of the community. At higher prices, a family that might have rented one room for the parents and another for the children will now double up in just one room because of the "exorbitant" prices. That leaves another room for someone else.

Someone whose home was damaged, but not destroyed, may decide to stay home and make do in less than ideal conditions, rather than pay the higher prices at the local hotel. That too will leave another room for someone whose home was damaged worse or destroyed.

In short, the new prices make as much economic sense under the new conditions as the old prices made under the old conditions.

It is essentially the same story when stores are selling ice, plywood, gasoline, or other things for prices that reflect today's supply and demand, rather than yesterday's supply and demand. Price controls will not cause new supplies to be rushed in nearly as fast as higher prices will.

None of this is rocket science. But Justice Oliver Wendell Holmes said, "we need education in the obvious more than investigation of the obscure."



©2004 Creators Syndicate, Inc.

[Rammer]

"Price gouging" is good.

[ExitPurgamentum]

The fuel in the tanks was purchased for far less than $6 per gallon. I am not even sure why gas jumped to $3.50.

How much do you think it costs Apple Computer to produce one iPod that sells for over $400? Perhaps a few bucks. Why are you not complaining that it sells way above cost?

How much do you think it costs to produce a dinner at a posh restaurant that charges you $100 for it? A few bucks. Why nobody complains about that, why is this always gas and oil?

More generally, where did you get the idea that the price should be close to cost? I can tell you where: Marx. It is he that proposed the theory that things have an intrinsic value, and all socialists have been refining techniques of how to compute that value. A price above that value is "greed," "gouging," "capitalist exploitation."

All these people have impoverished Africa and are now choking Europe. Why are you one of them? Does it bother you to discover that you are thinking like Marx while viewing yourself as conservative?

[EagleUSA]

And when was it that you realized socialist planned economies were the way to go?
-----
They are not. The forces of supply and demand will burst the crude bubble -- regardless it is still driven by greed. And when even the Saudis acknowledge it, you should open your ears.

[Eska]

No. 2 diesel is 2.95 here along the yukon; been that for a year. I have a 1000 gal tank and I'm thinking about adding a second tank. I'm told that I can have fuel oil delivered for around 2.50 if I buy 2000 gallons.

I have been in several bush villages where fuel was 5 bucks out of 55 gallon drums; and that was a few years back; and that's from alaskan oil refined up here. Whatever the market will bear.

[bvw]

You've seen just a temporary glitch in your area. Prices are rising station by stsation depending on tanker delivery schedules. Highest volume stations getting one or more tanker-loads a day have raised their prices -- the ones getting one or two tanker loads a week have not. But they will. Look for $3.80 or so regular next few days.

[Rammer]

You are correct. The price at which an item will retail is a function of the market for that item. The cost of inputs only has a bearing on whether or not the company will have a net profit or loss when the item is sold at retail.

[carlr]

If there is no gas to be supplied than once they are out, they are out aren`t they.No cash flow no profits,nothing.If more is available at a higher cost to them than fine raise the price to cover the costs and make a profit.If there is no supply than I guess they will be making nothing on nothing won`t they.Do you have any experience in retail,or operating a business newbie?Perhaps you should take a small amount of your obvious intelligence and check some of my previous posts before calling me a socialist.Just don`t expend to much time at such trivial matters.

For all who wish to make accusatory statements read the damn article and than my post.The suggestion that the increase in the price was to ensure that there would be more gas to go around because people would buy less because of the higher price is stupid.If there is a finite supply of the product than if you sell it all to one or to one hundred the bottom line is the same.

[Shalom Israel]

They are not. The forces of supply and demand will burst the crude bubble -- regardless it is still driven by greed. And when even the Saudis acknowledge it, you should open your ears.

You're contradicting yourself. Or perhaps more to the point, it isn't clear that "driven by greed" even means anything. Adam Smith's "invisible hand" is precisely the observation that "greed" motivates people to act in a way that benefits mankind: greed makes me charge more when people are willing to pay more; greed makes other people notice that, and start making more of what I'm making; people notice the price and re-evaluate how badly they need what I'm selling; etc.

[lilylangtree]

Yep, price gouging has been going on for several years. The oil companies are laughing themselves all the way to the bank.

[bvw]

"Price gouging" it isn't! But that's the buzzword.

Hooray for the price gougers! Without quick price rises, we won't have gas except by strict rationing, long lines etc.

[nathanbedford]

Gauging, what is gauging? Providing a good at a market price, or failing to sell it if the market considers the price too high? Gouging, you say? Let them gouge, sir, and soon the market will be awash in cheap oil. Prosecute them, and you will have a privileged elite, political, class with plenty of oil for their personal use and endless lines, shortages, and a black market for the rest of us.

I am a free market conservative, not a disciple of price fixing. Rent control in NYC exists as a rump appendage of well meaning temporary emergency measures by statists during the Korean War! But, what the hell, we still have troops in Korea, so maybe it was really only a temporary, emergency, war measure.

Let's price fix gas just until the "crisis" passes. I am sure you will set a fair date, and while you are at it, set a fair price, and, oh yes, you can tell us how much of it we should be permitted to have.

[wideawake]

The local gas stations did not raise their price because the gas they had in their storage tanks became more expensive, they did it to take advantage of a natural disaster and to essentially extort their community.

Clearly you've never run a business.

Say you buy 1000 gallons of gas for $2.00 a gallon and you sold it at $2.50 for a 50c gross profit (real profits are much lower because you have to pay employees, make lease or mortgage payments, etc. out of that 50c profit).

Say now that a new stock of gas will cost you $4.00 in bulk because a natural disaster has shut down refineries and drilling platforms, making gas scarcer and therefore more expensive.

The your average cost of the 1000 gallons you have now and the 1000 gallons you'll have to buy to replenish your pump is therefore $3.00.

So your price will have to go up immediately from $2.50 to $3.50 or else you will not generate enough cash from the current 1000 gallons to be able to purchase the next 1000 and you'll be out of business.

The price just went up 40%, but it has to just for you to stay afloat.

That ain't gouging - that's normal business practice. Supply and demand.

[CSM]

"If there is no gas to be supplied than once they are out, they are out aren`t they."

I suppose those people sitting on roofs and trapped in attics can just sit there while the helicopters and boats have no fuel to go get them.

[El Sordo]

No, no, no...

Because I am only thinking of myself, I can rationalize my own self worth and assign it an arbitrarily high value, or something like that. Gouging only applies to the actions of others who I presume to have more money that I do.

And who have things that I want. They must either have things that I want or have things that I don't think they ought to want. It works either way. Quite convenient.

It's the same line of reasoning that results in:

- I attend a church, but you have joined a cult.

- I am eccentric, but you are crazy.

- I am thrifty, but you are stingy.

- I have a high value, but you are greedy.

I like it, it's very flexible that way.

[southlake_hoosier]

You have got to joking?

Oh, I know if you were joking you would say "A horse walks into a bar, and the bartender asks why the long face".

What bothers me is that there is a lot of things happening right now, and it is riding on everyone's emotions. There does not seem to be any pleasure(exception or not) in seeing otherwise sensible people arguing over so many different things all started with discussions over gas prices.

Under different circumstances this would not happen, and I think everyone needs to step away from the keyboard and take a deep breath, and think about what they are doing.

There are mush more important issues to deal with at the moment.

[ExitPurgamentum]

There is a difference between normal market pressures, competition and taking advantage of a community or nationwide disaster. If you cannot discern the difference you're beyond reason....

Such strong words.. Perhaps it is you that is beyond reason? A natural disaster is a normal market pressure. Yesterday you, a gas station owner, were able to sell 100 gallons of gas at $2/gallon. From $200 proceeds you paid $195 for the gas itself, wages of your attendant, insurance premium, the utility bill and written off a loss due to someone driving off without paying. The remaining $5 you brought home and fed you kids.

Today, there is shortage and you can get only 50 gallons of gas. What should the price be for you even to cover your costs? Do some math before you post anything.

The local gas stations did not raise their price because the gas they had in their storage tanks became more expensive, they did it to take advantage of a natural disaster and to essentially extort their community.

The restaurant owners do the same with food. If the restaurant is popular, prices are high due limited seating. Is that an extortion?

Wheat farmers do the same when there is a greater demand: raise prices and pocket the difference. When was the last time you complained about that?

iPod costs just a couple of bucks to produce but sells over $400. When was the last time you, or anyone else, complained about that?

The idea that price should reflect cost is a Marxist idea and anyone subscribing to it should not call himself a conservative.

The premise you postured of the gas station owners only raising prices to ensure those who truly needed it could get it, is laughable at best.

Absolutely: ignorance makes one think that serious things are funny. You have no clue of how silly YOU look.

There is a social responsibility aspect to being a good capitalist,

Not at all: this is a bunch of liberal, socialist cr-p that is being now taught in schools --- including major business schools.

What one can say that besides being a capitalist one is also a citizen. There is nothing really deep here: we are children to our parents, parents to our children, workers to our employers, and spouses to our wives and husband. That is, we play different roles in life.

How do we do that? Do you think of yourself as a child at work? Of course not: at work you work and parent at home.

The same must be true of the capitalist: make money as a capitalist and use it, if necessary, as a citizen. Give it to charity. Volunteer your time. But you DON"T have to think of that at work --- when you make money to cover the bills and pay salary of your employees. At work you work.

What bunch of socialist cr-p you've been sold, some companies still have it. Walmart is a good example which is one of the reasons the "Libs" hate them.

[mudblood]

"Please stop this now."

Them's fighting words...

[webstersII]

"The only reason there is a run on gas stations now is because the companies have taken it upon themselves to raise the price 2-3-5 times a day. If they had held the prices, there would have been no "run"."

I think it's safe to say that you have never had a business of your own.

[southlake_hoosier]

That seems pretty apparent on these threads lately.