Price Gouging II
Andy's comments on "price gouging" seem very reasonable to me.
If I understand correctly, price gouging occurs when a gas station gets its tank filled up at $2.00 per gallon on Monday and instead of charging its customers $2.20, which will cover its operating costs, it charges $3.00 on Tuesday because the wholesale price of gasoline has jumped by $0.80 from one day to the next. Suppose it continued to charge $2.20. In this case, customers would soon be lining up to get its gas, which sells for 80 cents less than its competitors' -- quickly emptying its tank. The big winners would be the lucky/savvy drivers who discovered the good deal. This sounds generous, but is it generosity to the right people? Do lucky/savvy people deserve generosity?
I find the public's fascination with gasoline pricing odd. This is one of the most competitive industries imaginable. Buyers have very good knowledge about prices -- which are posted prominently -- and there are several competitors within a stone's throw of each other on most commercial strips. Usually, the price per gallon differs by a few cents from station to station. (Although in the last week or so, I've noticed the variance in prices widening considerably, with differences reaching 10 or 15 cents a gallon.) Having a big, thirsty family, I often spend as much per week on milk as I do on gas. The price of milk varies from store to store by as much as a dollar per gallon. Time for an investigation?
If I understand correctly, price gouging occurs when a gas station gets its tank filled up at $2.00 per gallon on Monday and instead of charging its customers $2.20, which will cover its operating costs, it charges $3.00 on Tuesday because the wholesale price of gasoline has jumped by $0.80 from one day to the next. Suppose it continued to charge $2.20. In this case, customers would soon be lining up to get its gas, which sells for 80 cents less than its competitors' -- quickly emptying its tank. The big winners would be the lucky/savvy drivers who discovered the good deal. This sounds generous, but is it generosity to the right people? Do lucky/savvy people deserve generosity?
I find the public's fascination with gasoline pricing odd. This is one of the most competitive industries imaginable. Buyers have very good knowledge about prices -- which are posted prominently -- and there are several competitors within a stone's throw of each other on most commercial strips. Usually, the price per gallon differs by a few cents from station to station. (Although in the last week or so, I've noticed the variance in prices widening considerably, with differences reaching 10 or 15 cents a gallon.) Having a big, thirsty family, I often spend as much per week on milk as I do on gas. The price of milk varies from store to store by as much as a dollar per gallon. Time for an investigation?
Posted by Robert Whaples on
Tuesday September 6, 2005 at 9:01am
I have to say that he grossly understates the role of charity, which he describes as "benevolence", in the market.
It's also not a problem where there's a competitive market, but in small towns, there may be only one gas station, or all of the gas stations may be owned by one person.