Gas Station Chain Fined For Selling Gas Too Cheaply

Yeah, I read about that a couple of days ago... high larious.

 

WTF? this is the first time i've ever heard of gas being sold to cheaply? I thought we had a capitalist government. What ever happened to supply and demand?

 

Wow, that's democracy for ya!

 

Laws like these are remnants of new regulations that started up in the 1920s regarding gasoline pumps. Large corporations would build new stations and then lower the price substantially in order to drive competitors out of business. Then they would proceed to jack it way up afterwards.

As for supply and demand, the argument is that this creates a race to the bottom. Supply and Demand is slow to respond to changes in the market. For example, suppose they do lower their prices. Competitors have an option to either keep up or go out of business. Keeping up means taking a hit because you are selling below the market price and thus you start losing money. As a result, the company with the strongest ability to survive this wins the market because every other company goes out of business. Sure eventually after this lone company starts gouging, new business will come in and lower the price again but this process takes forever. There will be that long gap where one company rules the market and in a time of already excessively high prices, you cant have prices that are even higher.

Nowadays, states use complex formulas to create minimums and maximums for gas prices. Basically, there's virtually no way for a gas pump to deviate from the market price.

 

Because supply and demand operates more efficiently under that type of business environment. Regulating walmart and other business would practically equate to a command economy.

Because gas is the basis of so much of society and because supply and demand is actually relatively inefficient in this case, there has to be regulations on prices. Just read a history textbook on oil gouging of the 1920s. Gas prices were out of control back then.

 

There was an article a couple of weeks ago in the Dallas Morning News talking about how gas stations were getting twice the historical spread between what they were paying the refiners and what consumers were paying at the pump.

I didn't see any state agencies rushing out to shut that down.

 

Look in the history books for the breakup of Standard Oil.