The gas retailer seeks to maximize his selling price. All sellers act somewhat in unison because they have the same benchmark, oil. Together that makes pricing seem coordinated. An economic maximum is that prices are “fast to go up and sticky (slow) to come down”. Gas isn’t the only item to exhibit that behavior. The retailer will quickly raise his prices in anticipation of demand and his replacement cost of gasoline. Do you insure your house for what it cost to originally build? Or what it cost to replace today? The retailer must replace his gas, so prices go up. If his replacement cost is going down then he tries to hold on to his gain.
The retailers can manipulate prices so readily because there are so few of them. The government has made it very expensive to operate a gas station so the barrier to entry is very high and competition is limited. We are lucky that convience stores look at gas as a way to drive store sales. The retail margin on gas is razor thin. Not every transaction but on the average.
Gas ranging 40 cents within a day from say 2.40 to 2.00 is retail arbitrage. That’s free market forces at work and insure we have supply. The fact that it averages 2.20 instead of 1.60 is the government.
Thank you for the explanation.
However, despite your concise rundown of the market forces, the public still sees a retail price that goes up nearly instantaneously while remaining at a premium level after oil prices come down. That gives the appearance of price gouging.
Plus, voter suspicion of our institutions seems to be at an all time high. How long before the clamoring begins for even more regulation?
Despite their narrow profit margins, the oil and gasoline industry needs do a better job of addressing the situation; otherwise, it could very well be taken out of their hands.