by Andy77e - 12/25/07 8:51 PM
In Reply to: Not Necessarily by plcard
Ok, let's think this through real quick. Why would prices go up fast and drop slowly? Try the switch places method, where you put yourself in the place of a gas station owner.
Three quick illustrations, 2 with prices going up, 1 going down. You own a gas station on a street corner, and there's another station across the street.
First situation, gas prices slowly rise over the last 2 days: What are you going to do? If you raise your price first, you'll lose customers to the station across the street. So you hold out and hope they raise their prices first. They are doing the same thing. Eventually you snap realizing you are going to lose to much money, and jump the price up. The other station does the same after you. So even though it seems like a sudden jump in price, it actually happened over several days.
Second situation, a spike in gas prices. Now you have a 10K gallon tank under your shop. You filled it for $2 a gallon and sold half of it. So you spent $20K and have $10K back. You just heard on the news crude oil jumped in price. You call up you gas broker who informs you the next shipment will cost $2.50/per gallon.
So the next shipment will cost $25K and you only have $10K. Are you going to just raise the price to $2.50 a gallon? Heck no, you only have 5000 gallons left. You'd only get $12,500 from it, plus the $10,000 you already got. Now you only have $22,500 when the next shipment costs $25K... where do you get the extra $2,500 from? Your pocket, you own the station, you get to pick up the short fall. Are you going to do that? Not a chance. Instead you are going to jack the price up as high as you can without losing too many customers, to make up for that short fall.
Third situation, prices of oil have gone down. You are selling for $2.50/per gallon. The station across the street is selling for $2.48/pg. You call up your broker who informs you the next shipment will only be $2.20 per gallon. So what do you do? Drop to $2.20 a gallon? What for? You only need to be cheaper than the station across the street. Then you can still be the cheapest, still get all the customers and extra business, plus make a tidy profit to make up for the money you lost in the first 2 situations.
This is why prices at the pump tend to rise quickly, and drop slowly.
Finely, let us discuss 'price gouging'. It's amazing to me how people who have not even the slightest clue how the free market, and the oil market works, still think that know exactly what's going on.
You own something somewhere that you treasure. Let's say it's a '56 Chevy. You put time, maybe money, effort, into it. Fix it up, make it pretty, not billion dollar makeover, but a decent car again. Let us say one day you choose to sell it. Because you are a capitalist, you put capital (aka: time, money, effort) into that Chevy, you want extra money for it.
I come along, and I want your Chevy. But I don't want to pay extra for it. So I go running to government, cry about how you are charging so much more for your thing, than I want to pay, demand a law against gouging, and force you to sell your Chevy for how much I want you to. Do you have freedom? Not really, even though you thought you owned that Chevy, I forced you do what I wanted with it.
This is American, a land that's supposed to have freedom. Freedom to bring products to market, and charge as much as you want for your product. Remember it's supposed to be yours... you own it. So if it's your product, you own it, you can charge as much as you want for it. This is the founding fathers of our country... life, liberty, and property.
The only time and place where 'gouging' can really occur is when you are in a life and death situation, and the supplier knowing you will die without their product, charges insane prices. Like oil heaters in the middle of a level three blizzard where people don't have heat.
And worse yet, we have cheaper fuel here than most of the world. UK people pay 4 times as much for a single gallon. Almost $14 dollars a gallon. Why people are crying here in America where we have it so good, is beyond me.
Last of all, if you want to blame someone for high gas prices, blame yourself. We allowed our government to mandate fuel formulations ($) mandate expensive Ethanol ($$) and one full dollar per gallon is taxes ($$$) and better still, by preventing oil companies from drilling, from exploring, from building refineries, we have forced them to import oil ($$$$) So with all due respect... stop calling your representative about 'price gouging'... the person doing the gouging is the one in the mirror.