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Gas Service Stations and Gouging

This article was written by in Economy. 4 comments.


The federal government announced the other day that they will investigate price gouging by gas stations. The announcement itself may have helped to ease prices a little, but most of the time, the investigators report that price movement is merely due to the forces of supply and demand. I heard on the radio this morning that the results of the investigation into gouging after Hurricane Katrina are due to be released soon.

The “market forces” argument is interesting. If a gas station raises prices after a disaster so much that their profit margin jumps 48% (56 cents per gallon to 83 cents per gallon), but people still pay, it’s still a function of supply and demand. However, the New York attorney general’s office has decided that a 25% increase in profits after a disaster is the limit of fairness. The market says the price jump is okay, but the attorney general does not.

Some businesses will take as much advantage of people as allowed. The article does point out that not every price increase is an example of gouging.

Some stations, especially those that are independently owned, have to raise prices faster because they don’t have long term contracts with suppliers, or large tanks of reserves like many stations that are part of a larger chain, according to AAA’s Geoff Sundstrom…

Other stations jack up the price in a desperate attempt to avoid running out of gasoline altogether, so they can remain open to sell their convenience store fare and keep employees working…

[O]f the hundreds of complaints they investigated, only 18 were deemed worthy of action.

It might make sense to hedge against rising gas prices. My index mutual funds seem to have the oil sector covered, but if you want to focus, Michael Sivy suggests looking into companies with North American oil reserves.

Published or updated April 26, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 4 comments… read them below or add one }

avatar Bill

Heck, I work in the oil and gas industry, and even I think the first example is gouging, plain and simple. I have no problem with prices going up, even sharply and quickly. However, the profit margin should stay reasonably level. Otherwise it looks like gouging.

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avatar Herb

All this talk of price gouging by the White House is ridiculous. GW loved energy de-regulation when his buddy Ken Lay was getting rich gouging California but now that his approval rating is in the toilet, he’s all for regulation? So much for not listening to opinion polls and being a “straigh shooter”…

They should of course go after collusion and the like, but capitilism is built on the free market. There has to be some regulation because gas really is not a discretionary purchase (if a station was allowed to charge what the market could truly bear ($10/gal? $15/gal?), things would get very ugly) but this whole political component is out of control.

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avatar dj

The government doesnt like oil companies gouging…but wants to raise taxes EVEN more on gasoline…and gouge the customer. The gvmt doesnt like competition when it comes to stealing.

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avatar G

Great article. I recently posted about gas prices and the unbelievable success of oil companies. I enjoy reading your blog and added a link to your site. Please add my site to your blogroll.

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