Friday, May 18, 2007

Gouging Note

I've read several blogs today about gas gouging. Apparently consumers are beginning to put the wood to legislators to do something about gasoline prices. The blogs I've read are essentially saying that charges of price gouging are nonsense. Read the link above for an example.

I don't believe that there is much price gouging, meaning that those in the supply chain are increasing prices faster than wholesale costs to them. Sure, there are some examples, but I'm not a believer in a conspiracy of gouging in this way, on the upside.

Where I believe gouging occurs is on the downside. When wholesale prices go up, prices throughout the supply chain go up immediately. When wholesale prices go down, it can take weeks or months for those changes to be reflected in the retail price. That is price gouging and I think it does occur on a widespread basis, thus the huge profit increases for oil companies when prices rise. But I also think it's human nature and I'm not sure that regulation can do much about it.

Whenever we go through another adaptation process of higher gasoline prices due to the fundamental depletion of the resource, we have legislators who want to investigate and legislate. Then nothing happens. That's not all bad except I would be in favor of a windfall profits tax. This way incentives to maintain excessive pricing in the system are diminished, and if those profits do arise the wealth is shared with taxpayers.

Another legislative change I've been in favor of for some time is increasing gasoline taxes. I'd propose a $.20 per gal increase in gasoline prices every six months until prices begin to reflect reality (ask Europe about real gasoline prices). I would also propose that any tax collected be used to develop non-petroleum alternative energy sources. By taxing, we as a people take a proactive stance in reducing petroleum use and encouraging innovation, rather than allowing the inevitable market disruptions to "encourage us" to change. But alas, I've been speaking into a void on this issue for years and suspect the same will continue into the future.

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