On gas prices

Typically, price of gas reflects the expected restocking costs. If a station sells gas for 2.20 but has to re-stock at 2.40, they lose money. Moreover, rising prices are generally a problem for gas stations, not a boon. Gasoline is a break-even item, as it’s a perfectly generic product, so most stations cannot charge significantly more for it than the competitors. The money maker for them is the attached convenience store. So rising prices that discourage people from refueling as soon reduce the income from coffee and sandwiches. “Price gouging” is merely raising the prices enough to be able to restock the next week and to avoid running out of product completely, so that people would still come in and buy something at the store part of the station.

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5 Responses to On gas prices

  1. BillCa says:

    When prices fall, both the wholesaler (refinery) and the retail stations hang on to a couple of cents per gallon for the first few days. This is how they can recoup some of the lost revenue when prices spike as they are in certain areas now. But they’re not making excessive profits. Stations accused of “gouging” by raising their prices significantly are probably basing it on refinery information that they may not be able to re-supply them later in the week or for longer. So the station will run out of fuel. And with no customers and little revenue, it’s not worth it to stay open until they get fuel. Meanwhile the station owner tries to get as much revenue as he can to tide him over until fuel flows again.

    John Stossel wrote an interesting opinion piece in REASON about why anti-gouging laws may actually harm consumers during a disaster. See the link below.

  2. Lyle says:

    Government makes more money on a gallon of gasoline than anyone else.

  3. Jay says:

    And if you really want to see the price point stabilize during events like hurricanes, etc. then push to roll back the excessive EPA regulations that have impeded building new refineries in different parts of the country that would reduce the risk of bottleneck in the ability to process crude oil into gasoline and then access it to the pipeline system to stabilize availability. Combine that with increasing domestic drilling of crude oil and the effect of cheap stable energy costs would help the rest of the economy in the process, while making us safer as a nation by reducing reliance on foreign oil.

  4. Kevin Menard says:

    Let’s not deny we do see some price gouging – however it tends to fail in a open market. Locally now people will gas are selling at about 2.60 and the fellow who decide to charge 3.oo a gallon has an empty station while the others have lines.

  5. JRD says:

    Gasoline retailers and wholesalers play a commodity futures game. The gasoline their buying now with the threat of hurricanes won’t be delivered for many weeks.
    Have a friend who’s family owns a large “C” store chain. At the end of the year if they profit a few cents per gallon they’ll consider that a good year. Lyle is correct, the Government makes out very well on gasoline.

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