Gas Price Grouches

I saw a recent comment to an online story about gas prices in the Carolinas. The guy was complaining that one station charged $3.99 per gallon when he heard another one a short distance away was charging $3.59. He asked if that much of a price difference was price gouging.

Due to Hurricane Gustav and Ike, supplies from the Gulf Coast were interrupted for an extended period of time. Throughout the supply shortage, people were constantly talking about "gouging." I don't doubt that there was some gouging, but basic 10th grade economics explains that as supply decreases, prices increase. Not simply because the seller can sell for more, but because his cost also goes up. Sellers also would like to provide their product to as many customers as possible, so they don't have to turn away other customers. In this way, increased prices encourages some consumers to buy less - to buy only what they need versus what they want.

I remember the scene in It's a Wonderful Life where George Bailey is trying to prevent a run on the Bailey Building and Loan. He asks all the depositors to withdraw only what they need for the short term rather than closing their accounts. The first man insisted on getting every penny. Most of the crowd agreed to take a smaller portion of their total balances. Thus, the building and loan stayed in business and everyone was able to get what they needed.

Unfortunately, local media created a panic by telling consumers, "fill up now or you may not be able to later," there was a run on gasoline in Georgia and the Carolinas. People panicked. Everyone made a dash for gasoline and stations ran dry. It has taken some time for stations to get back to normal supply levels. Many stations only have 87 octane, while others have gas one day and don't the next. However, some gas stations have been able to stay open over the last week or so.

Like any industry that delivers its product, the number of trucks petroleum suppliers maintain is based typical fluctuations in normal market conditions. Petroleum suppliers don't keep a fleet of unused tanks and trucks sitting around just in case they have to double or triple their normal deliveries. Thus, it is taking a while to get all the stations filled up again.

Because local suppliers have had trouble keeping up with demand, some stations have resorted to suppliers that are farther away. Generally, the farther the gasoline has to be shipped, the more it will cost. The result is a wide range of prices at the pump.

Here was my response to the posters question:

"Gouging? Would you rather both stations charge 3.99? No...it isn't gouging. It's called competition.

If all stations charged the same price, there would be no consumer choice and no competition. When gas stations collude to charge the same price, it's called price-fixing and it's illegal because it harms the consumer.

Furthermore, if someone buys at the 3.99 station because they were too lazy, too stupid, or too apathetic to shop around, it's their own fault for not being an informed consumer. Unfortunately, a lot of consumers are all three - lazy, stupid and apathetic.

If people stopped buying at the 3.99 station, the station would either have to lower the price or not sell as much gas...which means less people going in to buy drinks, snacks, etc...which means less profit. If someone is willing to throw away an extra $6 bucks for 15 gallons of gas, why should the government step in to protect the man from himself?

If the government were to dictate gasoline prices, the politicians would be flooded with even more Big Oil lobbyists and more Big Oil campaign contributions. THEN how much do you think gas would cost??"

That last paragraph sums up government price controls on most any commodity. If the price of a commodity is dictated by the government and that commodity has a strong (i.e. wealthy) lobby, the government becomes a hotbed for corruption. Example? How about a different liquid commodity purchased by the gallon? Got Milk?