Posted on 09/22/2008 1:42:50 AM PDT by Maurice Tift
Gas stations should be allowed to charge any price they want.
Stop and think. There are gas stations all around us. All of them havesimilar products and must compete with one another.
We have regulations and agencies that watch to make sure there are no cooperative arrangements among stations.
Why, then, are price-gouging laws such a bad idea?
First, the price restriction interferes with market forces. For example, gas stations anticipate a lack of supply of gas over the next couple of weeks because of the hurricane in the gulf. They raise their gas prices to allocate the remaining supplies within their tanks. In fact, consumers do the same thing. Consumers expect gas prices to rise with the possibility of disruption to gas supplies.
Consumers increase their demand, putting an upward pressure on prices. Those consumers who really needed gas today are willing to pay a higher price, which is the reason prices should be allowed to change freely. Price allocates scarce resources.
When gas stations are not allowed to raise prices, shortages will develop. No one should be surprised that gas stations in the area ran out of gas.
(Excerpt) Read more at chronicle.augusta.com ...
Holy crap, the Augusta Chronicle was our newspaper when I was a kid growing up there. Anyway, Economics 101 (and every socialist country in history, and gas here in the 70s, and minimum wage, etc) tells us that an artificially low price ceiling means greater demand than supply, and thus a shortage. An artificially high price (floor) means greater supply than demand, and thus a surplus.
During disasters, price spikes solves the problem of rationing. If a hotel room is normally $100 and forced to stay there, you might get a room for the kids and a room for yourselves. If the price jumps to $250, you’ll be much more likely to “make do” and squeeze your family of 5 into a single room, living a bit less comfortably but leaving a room available for a family that would otherwise be left out in the cold.
Or maybe you’re sticking around, but decide to stock up on bread “just to be on the safe side”. Normally your family goes through 2 loaves of bread per week at $1 apiece, but maybe you’ll grab 6 (why not). If you get to the store a few days in advance of the storm and see $4, you’ll probably think a little harder about whether you’re really gonna need 6 loaves...and the store isn’t going to have empty shelves.
http://townhall.com/columnists/WalterEWilliams/2006/05/31/economics_of_prices
Walter Williams on pricing
If the objective of the “anti-price-gouging” crowd is fair allocation of resources in an emergency, price-gouging laws have failed the objective.
If I’m not allowed to raise my price in an emergency to guarantee delivery to the customer that displays the greatest demand, I’m restricted to selling on a “first come first serve” basis at below market price. How is that more fair to potential customers?
I believe the “fairness” argument (based on the comments of those breathing fire about “gouging” last week) is that it is “fair” that a scarce resource be available on a random (first in line) basis, rather than based on who is willing to pay the most.
This, of course, ignores the incentive to consume less when the price is higher.
Price is the medium by which supply informs demand. Price caps simply obscure the message.
It is a mistake to think of the local gasoline retail market as being comprised of many small, independent businesses, freely competing with each other on the basis of price.
The wholesale gasoline business is very tightly controlled by the large oil companies, their subsidiaries and business partners.
At the most there may be a few individually owned outlets but for the most part businesses that sell gasoline are owned or operated by a few large companies.
They may be company run or franchised, but the price they pay for gasoline and the price they charge for it is dictated by the oil companies and large gasoline distributors.
They also control what any independent sellers charge by controlling the wholesale price and in some (most) cases with contract language.
You cannot just build a gas station and call around town each day to see which distributor has the best prices. Most of them won’t sell to independents and those that do usually want a sole source contract. Without a contract it is very difficult to purchase gas at any time and almost impossible to find a reliable supply.
Additionally, many state and local governments have laws that prevent price competition by dictating the minimum selling price, allowable markup, etc.
The laws are usually given some misleading name like Fair Trade law, or Consumer Protection law, etc., to make it sound as if the purpose is to benefit the consumer, but in fact their function and effect is to benefit oil companies and gasoline distributors by preventing actual price competition at the retail level.
Econ. 101:
Price is the medium by which supply informs demand. Price caps simply obscure the message.
. . . and also the medium by which demand informs supply.IOW, price is information, and price control is censorship which attacks the ability of people to cooperate intelligently. The impulse to control prices by government diktat is the impulse not of the person of action who can provide supply, but of the mere critic:
There is no more unhealthy being, no man less worthy of respect, than he who either really holds, or feigns to hold, an attitude of sneering disbelief toward all that is great and lofty, whether in achievement or in that noble effort which, even if it fails, comes to second achievement. A cynical habit of thought and speech, a readiness to criticise work which the critic himself never tries to perform, an intellectual aloofness which will not accept contact with life's realities - all these are marks, not as the possessor would fain to think, of superiority but of weakness. They mark the men unfit to bear their part painfully in the stern strife of living, who seek, in the affection of contempt for the achievements of others, to hide from others and from themselves in their own weakness. The rôle is easy; there is none easier, save only the rôle of the man who sneers alike at both criticism and performance.It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds . . . Theodore Roosevelt
No, if the price jumps to $250 many potential customers would drive another 20 miles to find a $100 room. Next summer vacation those families will still be holding a grudge against the high priced hotel chain and book their rooms with the more accomodating company that didn’t try to gouge them.
Same with the bread, I’d drive around the block to the other store which is still selling bread for $1 or I’d buy some flour and make my own for way less than even the original $1 price and then boycott the $4 store forever after the storm.
The stations that "gouged" did not run out of gas but did get a lot of complaints, especially when people had to buy gas at the "gouge" prices because the cheap stations had no gas. Lots of people called for the "gougers to be jailed. A very few people understood that the stations that "gouged" ensured that there would be gas available after the storm when deliveries were interrupted.
It is like the people who rush to the coast right after a hurricane selling 10 pound bags of ice for $50. They get arrested and jailed a few days later. The next hurricane, no one brings ice to the coast and there is no ice for anyone until local stores have electricity again and are making that $2 ice. And the people who complained about the $50 ice now complain about the a$$holes who didn't think it worthwhile to truck ice 50 or 100 miles down to not make back their expenses much less make a profit. It is as if folks believe that producers of goods are all independently wealthy people who can make unlimited amounts of goods and give it all away and profit is just the workings of vicious greed.
I don’t buy your argument.
In Tappahanock, VA. yesterday, The franchise-owned Texaco station and franchised-owned Exxon station had regular at $3.79. Three blocks up the road the Sheets and Valero stations had regular at $3.52. That’s a $0.27 difference per gallon. If the majors are fixing the prices, this just doesn’t wash.
In Atlanta I had a similar experience. After the big rush on Thursday/Friday of last week, almost all stations were out of gas. Their last prices posted were usually $3.99, but they were closed on Saturday and Sunday. Only one station had gas, and his price was $4.29. As I pointed out to the GF, who is performing the greatest public service? the guys who sold for a lower price, got swamped and are now closed, or the guy who raised his price, cut his demand, and still has fuel? If you really had to have gas today, who would you be glad and thankful for?
I still heard the “he’s gouging” grumble, but the facts are that supply/demand are basic forces, and that Adam Smith’s “invisible hand” still controls the marketplace.
There are shortages because gouging is illegal?
Here in Sasser, countrys has had gas pretty regular. Raj kept gas until late Sunday, and has had it all day today.
Wow... Sasser is pretty close... I bought some Regular today - they were out of Premium.
How does that work when the station gets down to the very last couple of gallons? Are those worth, say, $275,000 each? The last pint $10 million?
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