What, exactly, is "price gouging" in re: gasoline prices?

[Shalmanese]

Another factor is that one of the reasons the free market works so well is due to faith that the free market works so well. I can pull into any gas station in any corner of American and be sure that I’m getting a price that is within a couple of cents of the lowest price within a few miles. I know this is true because if it wern’t, that gas station would go out of business. Thus, it doesn’t matter really which gas station I pull into, I can not care about gas stations.

Under a price gouging situation, this assumption is no longer true. A gas station a few blocks away might be selling gas for a dollar less. So what am I going to do? I’m going to drive around to 10 different gas stations, compare the price and then drive to the cheapest one. This is a grossly inefficient use of scarce gas and also causes traffic congestion. But if the government comes on the radio and announces a cap at $4.50 on gas prices and a ration of 10 gallons per customer, then I know I can pull into any gas station and be guarenteed to recieve a fair price.

[JThunder]

What Driver8 said. I was going to say something quite similar, dang it.

[scotandrsn]

The variance of gas prices is, not surprisingly,always major news here in SoCal.

We are essentially a captive market. There is no real transportation infrastructure in place to support anything but people driving in cars everywhere. So our demand is pretty much constant, or was until recently.

The routine here is that about 5 minutes after, let’s say, a landslide damages a Shell refinery, the price of gas goes up, sharply. Not just at shell stations, at all the stations. The news will respew some bullshit about affecting overall supply in the region, blah blah blah. Admittedly, this is basic economics. Demand remains unaltered, and supply has theoretically been reduced, the price goes up. One could even see how a refinery might sell processing capacity to a competitor to account for other brands following suit. One might even commend the companies on a short spike early, in order to smooth out potential problems down the road that might lead to even sharper spikes.

Then, a few weeks later, when the impact of the problem is actually felt in the supply chain, the price goes up sharply again. The news respews bullshit about how that Shell refinery landslide a few weeks ago has affected supply in the region, blah blah blah. Wasn’t the earlier spike supposed to mitigate the effects of that?

Also, when supply goes down, isn’t the price increase supposed to cover expected losses in revenue? Wouldn’t one expect to see the profit margins thin out just a tad, temporarily? But you don’t see it happen. Profits keep skyrocketing.

And it’s not just limited to local phenomena. We had a number of of price hikes just after Katrina and Rita. Pretty much anytime anything happens anywhere, the gas price jumps here multiple times.

About 2 months ago, though, funny thing. The average price around here topped $3.00 a gallon. It’s a purely psychological thing, but there was certainly something jarring about seeing your final price for a tank triple the number of gallons you put in. Suddenly my morning commute got real easy. Fewer vehicles overall, and hardly an SUV to be seen, whereas they clogged the roads even up to about $2.90/gal. How they were getting around now, or what so many people had been doing before that they could suddenly do without, is beyond me, but it takes me about half the time to get to work now. About the same time, Congress announced probes into price gouging, and Whaddaya know, prices began to drop. The cheapest station on my route to work now charges $2.65. Hey, the market does have an effect!

The biggest hurricane ever recorded, Wilma, has ripped through the Gulf in the intervening time btw, and prices here barely bubbled. Hmmmm…

Of course, with market forces and perhaps government pressure driving prices downard, we surely could expect to see a thinning of the profit margins, right? Investors looking warily at oil company stocks with a lack of enthusiasm? Anyone actually see that happening right now? :rolleyes:

Anyone who says gas prices have been at fair market value in the past year or two needs to get their head out of the sand.

[Ravenman]

@Sam Stone

You have a cite that shows that gas stations raised their prices, thereby CAUSING a panic, and not that a panic happened, thereby causing gas stations to raise their prices?

If you could you give me an example of a citation that would demonstrate such a thing, I’d be happy to look for one. What would constitute incontrvertable evidence that a panic did not set in before or after a gas station raises its prices by more than $4 a gallon?

In a larger sense, I don’t wish to put words in your mouth, but you seem to be arguing that price gouging has never occurred, ever, because sellers and buyers still agree, or agree to disagree, on prices. If that is the case, how do you explain the well-known case of Enron’s manipulation of California energy prices, in which prices went up by many, many multiples even though there was no identifiable market reason why the price of electricity should have increased?

[Wolfian]

@Emilio Lizardo

Also, people are often not rational consumers. Last week I went shopping at Costco, where the gas lines were quite lengthy despite the fact that the gas station less than 100 yards away, on the main street had prices 3 - 5 cents per gallon cheaper, and the pumps unoccupied.

Yes, but could they use their Costco credit cards at the other station?

[Sam_Stone]

@Ravenman

If you could you give me an example of a citation that would demonstrate such a thing, I’d be happy to look for one. What would constitute incontrvertable evidence that a panic did not set in before or after a gas station raises its prices by more than $4 a gallon?

In a larger sense, I don’t wish to put words in your mouth, but you seem to be arguing that price gouging has never occurred, ever, because sellers and buyers still agree, or agree to disagree, on prices. If that is the case, how do you explain the well-known case of Enron’s manipulation of California energy prices, in which prices went up by many, many multiples even though there was no identifiable market reason why the price of electricity should have increased?

You’re the one who made the assertion that gas stations raised their prices first, sparking a panic. I assume you had some evidence for that.

Look, guys. If the price of gas is not allowed to rise to the market-clearing price, there WILL be shortages. This is one fundamental rule of the market that holds every time. It’s predictable as rain. So if you’re going to pass laws to prevent ‘gouging’, you have to deal with the inevitable shortages that will result. Generally by rationing. But that’s a poor solution, because it’s inefficient, inaccurate, and also because it acts as a disincentive to supply.

The possibility of windfall profits in times of crisis is what causes many stores to maintain disaster stocks in the first place. Those inventories cost money to maintain. Take away the ability to profit from a special situation, and suppliers will no longer try to meet the demand. So you’ll start off with fewer goods available in the first place. Then when the disaster hits, price caps will cause an increase in demand, making the situation worse.

If you allow the market to set the prices, you will get rational decision-making. Companies will make preparations to truck in goods on an emergency basis. Retailers will stock a few extra generators, flashlights, whatever, knowing that the holding costs of the inventory will be made up with higher disaster pricing. In the meantime, that higher pricing will make sure that scarce goods only go to those who really need it, and not the clown who decides to fill up his RV ‘just in case’, when he actually has plenty of gas for the current situation.

The reason the ‘gouging’ argument keeps coming up over and over again is that emotionally it just doesn’t seem right to charge people more money when they are down and desperate. But that’s not the fault of the market or the ‘gougers’, it’s a sad situation created by the disaster in the first place. Trying to meddle with the market’s response to disaster just makes things worse.

[Musicat]

Definition of price gouging: Someone selling something for way more than you think he should.

[Ravenman]

@Sam Stone

You’re the one who made the assertion that gas stations raised their prices first, sparking a panic. I assume you had some evidence for that.

You must have misread what I wrote and substituted your own strawman: I said that rising prices “can” cause a consumer panic. I did not say that one specific case was the provable cause of any particular panic. Do you disagree with the notion that people might panic if prices are rising sharply? Need I provide a cite for that, too?

In any case, I can cite cases in which businesses have admitted in one form or another to violating price gouging laws. For example, nine gas stations agreed to pay price gouging fines in Missouri, Enron conceeding that it gouged California customers, and a hotel in New York blaming price gouging on some new hires at the front desk.

The salient points here are that very few businesses get busted for price gouging, some have admitted price gouging, and their example probably dissuades other businesses from engaging in the same behavior, and the free market system has yet to collapse in our country.

Look, guys. If the price of gas is not allowed to rise to the market-clearing price, there WILL be shortages. This is one fundamental rule of the market that holds every time.

The point that you seem to be going out of the way not to address is that price gouging laws are generally only apply in the aftermath of a disaster and remain in effect for short periods of time; and that there are examples in which goods or services are sometimes marked up to incredible prices even if there’s no proof of shortages or increasing producer prices.

To the contrary of what you keep implying, I don’t think a single person here has said that prices should not rise during times of increasing wholesale prices or during times of shortage. Most gouging laws provide that gouging does not occur when it can be shown that the price of selling goods or services are, indeed, on the rise. What’s more, most price gouging laws allow retailers to increase their profits by some reasonable amount (often by as much as 25%) during times of crisis. Your repetitive statement that businesses should have some ability to increase their profit is conceeded, with the caveat that there ought to be some sort of general guideline that businesses ought to exercise some modest form of restraint in order to serve a public necessity.

What is at issue here is whether businesses should have the right to engage in profiteering while people are suffering. Do you have a problem with the WW2 era laws against war profiteering, in which some unscrupulous companies tried to soak Uncle Sam for big money while our troops were being killed by the thousands?

The reason the ‘gouging’ argument keeps coming up over and over again is that emotionally it just doesn’t seem right to charge people more money when they are down and desperate. But that’s not the fault of the market or the ‘gougers’, it’s a sad situation created by the disaster in the first place. Trying to meddle with the market’s response to disaster just makes things worse.

I realize that you probably don’t agree with this, but the government interferes in the market on behalf of desperate people all the time. Why are there public utility commissions? Mostly to keep energy and services available to the poorest among us through price controls. I fail to see a moral difference between making sure that poor people can have basic services like electricity and water by controlling the price, and making sure that destitute people can afford to escape danger, feed their families, or find shelter in times of great crisis through temporary restrictions on usurious price increases.