Posted on 09/09/2005 10:38:44 AM PDT by SmithL
They're ripping us off.
No, they're doing us a favor.
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Gasoline at $3 a gallon has motorists and elected officials spewing allegations about oil companies' price gouging and profiteering. But even as California's attorney general begins an investigation into the record-breaking run-up at the pump, some economists say the high prices are a necessary and even beneficial response to the legitimate supply shortages that have followed Hurricane Katrina.
High prices serve as the most efficient way to allocate a scarce resource, said economist Severin Borenstein, director of the University of California Energy Institute.
Keeping prices low through some sort of government regulation would exacerbate the shortage and create gas lines like those in the 1970s, which helped plunge the nation into recession, he said.
"Suppressing prices when there's a real shortage is an ostrich policy to a real problem ... a head-in-the-sand policy response," he said. Letting prices rise "sends exactly the right signal: There's a real shortage, don't use so much gasoline."
That doesn't wash with California Attorney General Bill Lockyer, who has begun a probe into price increases of 25 cents per gallon or more since Katrina ripped through the Gulf Coast's vast energy infrastructure.
"I haven't seen any textbook on U.S. economics that says it's OK to violate the law, gouge consumers, collude, fix prices or to engage in unfair business practices," said Lockyer spokesman Tom Dresslar.
Dresslar said the state's anti-gouging law prohibits retailers from raising prices more than 10 percent when either the governor or the president has declared a state of emergency. Gas prices on average have risen
(Excerpt) Read more at sacbee.com ...
That's right, a gasoline sale, five cents off on the weekend. Why would they do that? Turns out the owner feels kind of bad about the way prices have taken off and decided to eat the five cents for those who wish to patronize the station on the weekend when there is no staff, nobody working Sat or Sun. Somebody usually manages to put the pumps out of action doing self-serve, so weekend sales don't amount to much anyway.
That's it in a nutshell.
Anybody who tries to tell you different is at best ignorant of the most basic laws of economics,
and at worst a damn fool.
The point is that those refineries being down had no immediate impact on our gas supplies, since our gas doesn't come from the gulf states. So the jump in prices was not a result of any actual shortage, but simply due to either a perceived fear of a shortage, or just due to gas suppliers wanting to get in on a good thing (higher prices).
"Not in the California market"
Yes, because california is an island unto itself, not effected by he national supply and demand for gasoline.
Sheesh.
When Conoco can make a profit over the past five months of 56%, there is more going on than simply supply and demand.
Gas prices always go up like a rocket and down like a feather. They will raise prices the minute an increase in the price of oil is expected, even tough they may not feel the effect of any increase for months, yet the prices will not come back down until months after the price of oil returns to normal...
"The point is that those refineries being down had no immediate impact on our gas supplies, since our gas doesn't come from the gulf states. So the jump in prices was not a result of any actual shortage, but simply due to either a perceived fear of a shortage, or just due to gas suppliers wanting to get in on a good thing (higher prices)."
See my previous post. California is not an island. Gas supplies during a period of peak demand or deminished supplies will get reallocated based on those factors. Just because you live in california doesn't mean you're immune from economic events occurring halfway across the country.
It's just like the ocean - you can not lower the level in one part of the ocean without affecting other parts. You can't drain the california coast and expect the levels in hong kong to stay the same. It's all part of the same, huge system.
I know what price-fixing and monopoly pricing are, but what exactly is "gouging"? How would you define it?
I think you just defeated your own argument there, sport.
Pricing commodities according to "what the market will bear" IS classical economics.
"Gouging" is whenever the price is more than I want to pay for something!
I never said it would have no effect, but the immediate jump was not a result of an acutal shortage, but the expectation of a shortage. They are charging $3.00 a gallon for gas that they had purchased at around $1.00 a gallon, thus increasing their profits dramatically. Eventually gas will cost enough to the retailer to justify a $3.00/gallon price, then it will start coming down. When it comes down significantly to the retailer, we will start seeing the price to the consumer edging down slowly. The retailer will make a significant profit on both ends of the cycle.
No one is here is saying that it is illegal, or that government intervention is needed, unless there is proof of collision or price-fixing. Whether it is moral or not is another question.
Here's a more realistic scenario:
the gas station owner knows his sales typically drop off on the weekend, especially at current stratospheric prices, so he decided to stimulate sales by dropping prices by a miniscule amount.
Which explanation makes more sense?
I really don't mean to sound ignorant, BUT...How can there be a lack of refineries if there's no lack of gas? If we lacked gas we'd see closed gas stations. No? What is the state tax on a gallon of gas in CA?
This is not a flame, but a true question.
In general, sellers will try to charge "what the market will bear." That price is determined by supply and demand. So the price of gasoline has everything to do with classical economics.
When Conoco can make a profit over the past five months of 56%, there is more going on than simply supply and demand.
Conoco's profit was 56% of what?
Any takers?
Goldman Sachs, are you out there?
Make that "collusion"...
"I never said it would have no effect, but the immediate jump was not a result of an acutal shortage, but the expectation of a shortage. They are charging $3.00 a gallon for gas that they had purchased at around $1.00 a gallon, thus increasing their profits dramatically"
Do you understand the concept of 'replacement costs'???
The prices rose mainly because they did not know what the next shipment of gasoline would cost them. They had to play the game every retailer plays on a much more dramatic scale - "Will I have enough income coming in on these sales so I can replenish my merchandise and stay in business".
And your $1.00 initial cost fee is way out of line. Right now wholesale gas prices are just coming down to about $2.00 a gallon, and that doesn't include the numerous other costs of doing business and complying with regulations that go into the price of gasonline.
And it doesn't include taxes, either!
Retailers make a small margin on gas sales. Most of their income is provided by the convenience items they sell.
Rather than just saying, "You don't get it do you?" I'm going to highly recommend a little editorial in the Wall Street Journal 2 or maybe 3 days ago, entitled "In Defense of Price Gouging."
You can find it in the library, I'm sure.
It is the short course on economics.
Change 'truck' to 'pipe' if you like -- the point was, suppliers WOULD truck fuel to Maine if there was a large enough price difference, particularly given the EPA waiver of the boutique formula gasoline restrictions. You cannot isolate the west coast economy from the rest of the country. A small fluctuation might stay regional, but you can't expect large (70 cent) changes in fuel prices not to spread to the whole country.
Sadly, the wholesale price of gasoline has little to do with classic economics. I used to work for an refinery company, and one day I asked the head of marketing how they determined what the wholesale price of gasoline should be, and he essentially said that while the price of crude certainly impacted the price, as well as demand, what actually determines the final price of gasoline was what the competition was charging -- in other words, what the market will bear.
Well, duh! How is that any different from 'classic economics'? What you describe IS supply and demand.
Yours is the best definition I have seen.
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