James K. Glassman and John Lott wrote an article for TechCentralStation.Com this month looking at one of the more bizarre revelations from the senior idiot Senator in Michigan, Carl Levin. Levin and his fellow Senators are shocked to learn that gas prices move up and down in lock step so that for the most part there is only a penny or two difference in gas prices between different gas stations.
According to Levin this must be due to some evil new invention of his called “parallel pricing.” As Glassman and Lott quote Levin,
In Michigan, the price of gas seemed to leap up overnight by the same amount across all brands of gas at all stations. It may not be illegal, but it is not a coincidence. If there were real competition in the industry, why would the prices of different brands go up and down together?
Yes, Levin really is this stupid. Having worked at a gas station during college the answer is obvious — if a gas station is selling a penny or two higher than the guy down the street, people will go to the lower priced station. Undercutting of competitors is difficult, however, because gas is sold at cutthroat rates (in today’s market, most profits come from convenience stores attached to gas stations).
This is why there is such volatility in gas prices. The price of gasoline at a given station can change multiple times in the same day. As Lott and Glassman note, historically gas prices have been all over the place. In January 1997 it was $1.22/gallon on average. In January 1999 it was 91 cents a gallon, and in January 2001 $1.40/gallon. By January 2002, gasoline was $1.10/gallon. If there is some sort of illegal collusion, you’d think the oil and gasoline companies would do a much better job of fixing prices than that.
Lott and Glassman seem to think Levin and other Senators push this nonsense because they are trying to hide the role that the regulations they support play in gas prices. I doubt Levin can think that far out.
Instead, this is just a classic case of demonizing an industry for political gain. Levin attacks oil and gasoline sellers because it plays well in his campaign.
Source:
Levin flunks econ 101. James K. Glassman and John Lott, TechCentralStation.Com, May 10, 2002.