Newsweek’s Daniel Gross explains the Consumer Price Index (here’s the official BLS site) in a very simple video. I could do without the goofy sound effects, but it’s a good, 2 minute explanation of how the government tracks inflation.
Per David Simon’s Berkeley talk, though, the video doesn’t go into why this matters. Perhaps they’ll cover that in the next installment of the Economics 101 series.
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I’m sure that the residents of Minnesota are glad to know that they are being protected from unscrupulous merchants who might dare take advantage of the high gas prices and sell gas that is just too darn cheap.
Way to go with that regulation! Score one for the good guys!
May 29th, 2004 at 9:36 pm
On the surface, it looks like a ridiculous law, but think about it another way: large merchants such as Shell, etc, are in a better position to reduce prices below profit margins. This causes them to corner the market at a time when everyone is looking for a better deal. Smaller merchants, unable to take the loss, lose customers and perhaps even their business. This would leave the big players in charge. In the long run, this would not benefit consumers as it would limit competition.
However, I am open to other perspectives.
May 29th, 2004 at 9:46 pm
If large companies can get the price down, that is ultimately good for consumers. Price fixing is a concern, but since the gas station business is a very easy business to enter (one of the reasons why there is a station on every corner), there will always be a threat to prevent too much mark up.
Law to artificially keep prices high ultimate cause the consumer to pay more.
May 29th, 2004 at 10:08 pm
Tell that to the farmers…
May 29th, 2004 at 10:13 pm
oh, and I think to understand the law, it’s probably important to distinguish the retailers from the wholesalers from the Shells/BPs/ExxonMobils. I don’t really understand whether gas stations are like the old McDonald franchises or like the new McDonald corporate owned stores… both of you mixed the three together, and I’m not sure they really are.
Whatever… the law is a subsidy of sorts targeted at the small, local gas station owner. I don’t get how realistic their “what if” scenario is, so I don’t really get the law… I get the intent, but I think it’s grounded in FUD without more info about the way the gas station business operates.
May 29th, 2004 at 11:15 pm
The law is designed to protect individual retailers from large conglomerates, such as Costco and Walmart, that can sell things a little more cheaply due their lower relative overhead.
The reason to do this, is to prevent them from driving the competion out of business, then fixing the price. However, due to the relative ease of entry in to the gas retail system, if prices are artificially high, then someone will open a store that has lower price.
My comments deal solely with gas on the retail level. The large producers are a different story. The only answer to that is going to be increasing our refining capacity while reducing utilization.
May 30th, 2004 at 12:39 am
right, but how many “individual” gas stations are there? What’s the relative proportion? in other words, is the law actually addressing a real problem or a made up one to generate the subsidy?
For example, if 80% of the gas stations in that region are owned by companies like the one from Arkansas, then maybe it’s something that needs to be thought about. On the other hand, if 80% are still individually owned and operated, then the law is just dumb no matter how good the underlying premise sounds.
This stuff is probably easy enough to figure out, especially if the bill was debated…
May 30th, 2004 at 8:56 am
Your local name brand gas station is usually independantly owned and operated under an agreement with a major oil company. Few stations are actually owned by the oil company.
I don’t really care if they are 100% owned by a single corporation. Unless that corp artificially creates barriers to entry, there is no reason why they shouldn’t be able to sell gas at whatever price they want. If the monopoloes start selling gas at an inflated price, current barriers to entry are low enough, that competition will spring up.
Economies of scale benefit the conumser. There is no reason to legislate out the natural advantages of competition, as long as the monopolies aren’t price fixing. If Joe Independant can’t compete, he can’t compete. I shouldn’t be forced to pay more my products, if I choose not to, so that he can stay in business.
May 30th, 2004 at 9:59 pm
I think we’re agreeing, Bram…
All I’m saying is that you’re assuming the makeup of the local market is what you believe it to be… My point is that maybe there is something beyond the obvious that “inspired” the law. If your assumption is right (I happen to believe it is), then the law is just a subsidy for some local constituent.
May 31st, 2004 at 12:11 pm
Actually, this is a fairly common practice for Sheetz and a lot of the cheaper priced chains (many of which I believe are all corporate owned, rather than independent licensees), at least down here. I have definitely heard stories, especially in smaller towns down south, of Sheetz, WaWa, etc. coming in, selling gasoline at very near cost to drive up business (selling under cost is itself a violation of the federal antitrust laws), driving local competition out, and then hiking up prices.
And I think you’re underestimating the “barriers to entry,” at least for independent stations, and those in more rural areas. (Not everywhere in the country has a gas station on every corner, you know. Remember, Minnesota is a lot more rural than Hartford.)