Gas Pricing: Stockholder Value or Evil Oil Company Greed?
May 19, 2007 · By Martin Street
Further to Tom Cerber’s earlier post:
Demagoguing gas prices is one of the easiest rackets in politics. For many people high pump prices indicate that some sort of duplicity is going unpunished, because they are willfully ignorant of basic economic ideas like the profit motive. The idea that big evil oil companies should be “allowed” to create maximum value for shareholders is simply wrong because it goes against what they superficially perceive as being the public good. As if corporations (except for their own employers, of course) were charities, and in the case of big oil, charities run amok that need to have their status reviewed.
Keep this in mind when the word “fairness” comes up in public policy discourse. More often than not, “fair†means “correcting the obvious wrong in this situation by any means necessaryâ€, or simply “what’s good for meâ€.
You want prices to go down, cut down on your driving habits. It is proven that if the demand goes down, so does the price.
In our world, it’s “who gives a shit about the other guy”, so until that attitude changes, the price will stay high.
most oil exporting countries have a price for their citizens and sell for export at the world price. too bad we couldn’t do that here. of course the taxe bite would have to be lower but heh canadians like taxes don’t ya know.
I was thinking about this and I think I figured it out. Is the reason gas goes up on a long weekend because gas is a commodity? When a long weekend is coming investors know the the gas price is going to go up so they all start buying into gas stocks, and then that is actually what drives the value up. If this is the case then it is actually us that is causing the price increases (anybody who invests in the stock markets).
Yes it’s a commodity, but what about competition and collusion? A free market is only free until a monopoly forms or an agreement amongst “competitors” to form a monopoly. What people are outraged about is not the price of gas, or that they are being “ripped off”, but anger that the free market seems to be working not on a competition basis but on a collusion basis. When competitors agree to maintain an artificially high price for a commodity in demand to maximize profits, that is against the law, and that is what people wonder is happening.
jmorrison: I think you’ll find that’s the case when oil companies have been nationalized, like in Venezuela. I’m personally against nationalizing private interests, in this case not leastly because it would artificially increase consumption of a too scarce resource.
Shane: Your saying, essentially, “If it walks like a duck, talks like a duck…”. Gas prices aren’t exactly the same from competitor to competitor, and you could say that that is merely tweaking to avoid the appearance of collusion. I have another idea. What if the oil companies all use roughly the same formula for setting the price of their products, based on the market value of crude, a rough calculation of the total standing inventories in the market theatre, total production capacity within said theatre, and a bunch of other industry variables? Wouldn’t they all end up calculating pretty much the same price, without any collusion at all? Besides which, you’re asking oil company executives to prove a negative. If my scenario accurate and there is no collusion, how do you propose they go about proving that negative without revealing trade secrets?
Plus Shane, as in any cartel arrangement, there’d be a tremendous incentive for gas retailers to cheat by lowering prices. The mechanisms necessary to keep everyone in line would inevitably come to public attention. There’s a reason that six investigations by the Competition Bureau have found no evidence of collusion.
Also… think about what would happen if the price of gas didn’t go up on a long weekend: with more people needing gas than normal, normal supplies would be insufficient for the demand, and stations would run out. Only by raising prices can stations ensure that they have enough gas for everyone who wants it.