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Shocked: Gasoline Prices Vary Edition

From the Attorney General’s Memorandum to the Financial Fraud Enforcement Task Force (HT: Michael Giberson, who is a must read on all issues oil and energy related:

Based upon our work and research to date, it is evident that there are regional differences in gasoline prices, as well as differences in the statutory and other legal tools at the government’s disposal. It is also clear that there are lawful reasons for increases in gas prices, given supply and demand.

See Giberson’s analysis of price gouging laws here.  Michael Salinger, former colleague at the Federal Trade Commission where he was Director of the Bureau of Economics, has one of my favorite lines on the relevant economics.  In writing about the FTC Report on price gouging after Hurricanes Katrina and Rita, Salinger wrote, “as unpleasant as high-priced gasoline is, running out will be even worse.”  Actually, the whole context is worth a read:

If the public were to ask my advice on the wisdom of price gouging legislation, however, I would counsel against it. When disasters like Katrina and Rita occur, prices must go up.

The difficulty is that without knowing the details of a disaster, it is impossible to specify in advance how much prices need to rise. As result, price-gouging legislation — particularly if penalties are severe and enforcement is aggressive — will pose two distinct risks. One is that prices will not rise to market-clearing levels and gas stations will run out of gasoline. As unpleasant as high-priced gasoline is, running out will be even worse.

The other is that gas stations will shut down rather than risk an allegation of price gouging. In the wake of major market disruptions, it is always going to be possible in hindsight to identify companies that raised the price the most and to label them as “gougers.” But gasoline stations do not set prices in hindsight. A vague definition of price gouging will make it difficult for gas station owners to know what price they can charge and stay within the law. Indeed, the FTC investigation uncovered examples of gas stations that shut down rather than risk a suit under a state price-gouging statute.

See also here.

Filed under: antitrust, economics, markets, regulation