Greedy on the way up, and greedy on the way down

If you haven’t noticed, oil and gas prices have dropped significantly from their September highs. If you’ve been listening to anti-capitalists, you might wonder: “How is that possible?”

How is it possible that with so much rampant greed in the oil industry, the price could actually go down? Why would gas stations or oil companies lower prices? The short answer: they’re greedy.

That’s right. Greed has actually caused people to reduce prices. It sounds absurd, but think about it. With such "high" prices, anyone who sees fit to lower prices, will gain market share. The world will beat a path to their door. Greedy oil companies are lowering prices, trying to steal customers away from each other - and it’s working.

Well why didn’t this happen earlier? Good question. The answer: it did. Any time someone lowers prices too much, hoards of people line-up to buy that product, until supplies run out - leaving many people wanting. Think of the gas lines of the 1970's. Think of the odd and even days of yesteryear (where the last digit of your license plate determined on which day you could buy gas). Of course oil companies don’t go that far. They lower prices just enough to steal customers away, without letting supplies run out. Running out of supplies is bad - for everyone. Companies try to avoid it when their not prevented by law. You don’t always realize they’re reducing their prices because the supply of oil isn’t always the same - and the demand for it varies too. “just enough to steal customers away, without letting supplies run out” means something different every day.

The end result is that customers benefit because oil companies are greedy.

Share this

Though a potential view of

Though a potential view of the anti-capitalist is that, "Ah-ha! The government just started to get some oversight into those greedy, corporate fat-cats and then all of a sudden, prices drop! Go figure, can anyone say collusion?"

I think this is a bad analysis and can readily be explained by the fact that the industry has recovered from the effects of the hurricane and it's now the "end" of the driving season. However, I would like to hear how y'all would counter this arguement and where I could find some creadible info/stats on the situation.

Uggh, also meant to say that

Uggh, also meant to say that the pre-stated greed also factors into that they will drop prices ASAP and as-low-as-can-go in order to cut away competition.

I love the concept of

I love the concept of collusion between thousands of individuals who never met each other, let alone agree with each other.

Thank God Congress doesn't collude so easily. They would have finished us off by now.

I'm having some mighty

I'm having some mighty strong deja vu about this post.

Why collude within your

Why collude within your industry when you can just farm out your market building / quick fix price hikes to the U.S. Military?

I get the point about supply, demand, yadda yadda yadda, but let's be honest - there are more laissez faire markets out there than oil. When you are in a business so centralized and consolidated, you don't even NEED a big windfall to bank.

Shades of Gordon

Shades of Gordon Gekko
According to Michael Douglas' famous character Gordon Gekko, "Greed is good". When post-Katrina gas prices skyrocketed, many commentators with little or no sense of economics attributed it to greed on the part of the oil companies. Actually, they w...

Price Gouging

Price Gouging Bargaineering
Bill Cholenski wonders why more people aren't upset about greedy oil companies lowering the price of gas these past few...

I'm not sure I would agree

I'm not sure I would agree with the idea that there is a lot of stealing of customers going on in an active way. What has happened is that there is little if any brand loyalty anymore.
What I see happening is merely an attempt to manipulate profits on a much more frequent basis than makes any sense based on costs or availability of product. We now can see gas prices rise twenty or more cents per gallon in one day, only to fall by a similar amount a few more days later. It's all quite similar to what happens with airline ticket prices. Surely there are refinery industry analyses that day-to-day look at gasoline purchases and constantly fiddle with the price. Especially interesting is when you see the same brand of gas have dramatically different prices in two parts of town.
I'm sure that one goal of the refineries is to sell every drop they produce as soon as possible to avoid storage costs.
For a time, they relied on the popular misconception that the main driver of gasoline prices was crude oil price, so when crude oil went up, gas price went up almost immediately; unfortunately, when the price went down, there was generally a lag before gas prices went down again.
Katrina unmasked the way that refineries have tightened their ability to control prices by limiting total refinery capabilities. Yet, one does not hear an even passing mention of a plan to increase refinery capacity -- it still is not in their interest to do so, but is in their interest to keep anyone else from building competing refineries.

It seems that most of the

It seems that most of the rise in summer gas prices is due to our friends at the EPA. They have a mandated "summer gasoline" restriction which forces more stringent rules for refineries and gasoline transit during the months of june to mid-september*. That normal spike in gas prices was made worse by our natural disasters so it took a few more weeks to feel the relief that usually comes around mid-september.

*this is the one of the restrictions that Bush temporarily waived after Katrina

When it comes to their

When it comes to their government subsidies, I wish the oil companies would be a little less greedy.

Great point.

Great point.

This Week's Carnival Of The

This Week's Carnival Of The Capitalists
This week's COTC is up at Gongol.com. Finance related offerings include posts by Financial Options, Abnormal Returns, Pacesetter Mortgage, Soccer Dad, Searchlight Crusade, and Catallarchy