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Saturday, September 10, 2005

Concerning the article about oil prices and possible price gouging, considering that refineries and pipelines are out of commission, I am unsure if the $3+/gallon is really price gouging. How much more are oil companies profiting? To be sure, there were some gas stations in the aftermath of Katrina that were selling gas for $6-7/gallon--obvious price gouging. But we must also take into consideration that gas prices were already high prior to Katrina. I had not heard many complaints of price gouging then. It seems that right now, considering the damage done by Katrina, $3+/gallon is the efficient market price. I do wonder though: because gas prices have finally hit the dreaded $3/gallon mark, many Americans have said they would give up their large SUVs for smaller, more fuel-efficient cars, or change their driving habits. Is that true? Or people still willing to pay the gas money for the SUVs and unchanged driving habits? In short, are people going to cut their demand for gas...and hence the supply and price?

On another note, in the immediate aftermath of Katrina, you heard people talk of $7+/gallon gas prices as if they would be the norm, and not any sort of price gouging. We didn't see this (at least as the normal, efficient price), but I've come across people who are still convinced it will happen and we'll eventually end up in some sort of WWIII/Mad Max type of world. What can one say to people like that?

"Price gouging" seems a very interesting term. Does it have any meaning from the point of view of economics? Do you think it fits with one of our standard market failures? Could it be a new source of market failure?
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