The Mystery – and Misery – of Gas Prices

Every ten days or so, something mysterious happens in my town. It is as if all the gas stations exchange knowing smiles, rub their hands together… and raise their prices by 15-30 cents.

There is no logical explanation for this phenomenon. It does not restrict itself to any day of the week or hour of the day. It has nothing to do with crude oil prices (gas prices have been known to go up while crude oil is coming down), and it is worse when demand is greater – like Thanksgiving, holiday weekends and whenever the circus comes to town. Apparently these folks are strangers to the phrase “economies of scale”.

It starts with a few gas stations – usually from one particular chain – but within a matter of hours it spreads like a rash to all the other stations, until the entire county has been “readjusted”.

Then one of the gas stations lowers its price by a penny. They call this “competition“.

This starts off the second phase of the cycle. Over the next week-and-a-half, the gas stations slowly lower their prices a few pennies per day, until they decide that we have had enough “cheap” gas… then the vicious cycle starts all over again. I have no idea why the gas in the underground storage tanks is suddenly worth 25c/gal more, but there you are.

I am a big fan of the free market. However, I am also enough of a realist to understand that corporations do not like to compete, and will resist competition whenever possible. In many markets (such as computer hardware) they have no choice… but when the market is dominated by a small number of big players (like software, music, entertainment, phone service, internet service… and oil), the rules of the free market no longer apply.

I am sure that the oil companies are competing hard. So hard in fact, that in any given quarter, at least one of them will post losses; for that is the nature of the free market – winners and losers. I am sure that Oil company CEOs will swear on a stack of bibles that they are abiding by the rules of the market and are not doing anything untoward. I am equally sure that if you asked a dozen ordinary people – also known as a jury – if the oil companies were rigging the market, the answer would be convincingly – if not unanimously – guilty.

So what can we, the people, do to keep them honest? I have some suggestions that might help.

  • Restrict one-day price movements. Prices rarely come down by more than 5c/day, so why the 25c/gal spike? Simple: Because they can. Restrict price movements to ONE adjustment per day of no more than 5c/gal. An alternative is to allow them to set prices however they wish, but only when they get a delivery – once a week.
  • Finally, make it illegal for a gas station to refuse to give their price when requested by phone. This would force a station to compete with all stations in the area, rather than just the one across the road.

Simple spot fines would be quite sufficient to enforce this law, and receipts are more than sufficient proof.

Of course, the oil companies would kick, scream, resist… and lobby like crazy to overturn such a law.
And the Government will tell them “NO”.
And like a kid who wants ice-cream, they will keep begging, cajoling and wheedling.
And the government will reply with the threat of regulation.

It seems to me that there is nothing that instills fear and loathing in oil companies like the threat of oversight and regulation. Every time this threat appears on the horizon, they apply the brakes, like speeding motorists who see a policeman in the distance. Time after time, the price of gas has come down dramatically whenever they have been faced with the specter of Government-level investigation.

This is not as ridiculous as it sounds. The five basic necessities are food, shelter, clothing, bills and transportation. For many, transportation=gasoline. Food, drinking water, electricity, and phone service are  all regulated, so there is a good reason to at least consider it. Without gasoline, many of us are unable to get to work and thereby produce those taxes that our Government requires to do its job. I therefore submit that there is a problem here, and it is time to do something about it.

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