Tuesday, October 17, 2006

Note to Greg Stumbo: It's the collusion, stupid

A few weeks back, Attorney General Greg Stumbo took a break from persecuting Republican officeholders to announce his great victory for the consumers of Kentucky. He had accused and successfully sought settlements from gas stations charged with price gouging right after Hurricane Katrina hit the Gulf of Mexico last year.

To hear Stumbo tell it, he had saved Kentucky consumers millions of dollars and had single-handedly saved the free market in the Bluegrass State. But of course, Stumbo is prone to exaggeration, and he did so again in this case.

Price gouging was not a widespread problem in the Commonwealth. There were only a handful of stations accused of it, and they were scattered about the state and not concentrated in one area. So there were never any situations where gas buyers were forced to pay inflated prices in one locale or do without.

If Stumbo really wants to do consumers a favor, he'll look into another aspect of the petroleum market besides isolated instances of price gouging.

To paraphrase James Carville, it's the collusion, stupid.

There can simply be no other explanation as to why gasoline prices in a single market are always at or near the same level. When you have different brands of gas and different companies doing the retailing, there is simply no way that they are all paying the same wholesale price for gas. It would be easier to not suspect collusion if everyone dropped prices on the same day, because as retailers you have to keep up with the competition, but what other excuse can there be when everyone raises prices the same day?

Take the events in one Kentucky county seat town one day last week for an example.

When dawn broke, all six of the gas stations along the town's main strip were selling gas for $1.969 or $1.979.

At 10 a.m. the Citgo station, which is pretty much the trendsetter in this town, raised its price to $2.059.

By 3 p.m. all the other stations except the BP had increased their prices to a similar level.

By 4:30 p.m., the BP had followed suit.

What logical explanation can there be for everyone raising prices except collusion?

The six gas stations represent six different brands. Citgo, of course, is owned by the Venezuelan government. No right-thinking American should be buying gas from them after Chavez' recent dissing of President Bush on American soil. The other stations are Exxon, Shell, BP, Appco and Marathon. Shell is Dutch-owned, BP gets much of its oil from Alaska, Marathon is "an American company serving America" and now has rolled into it the former Kentucky company, Ashland Oil. And Appco is a chain based out of East Tennessee that buys its gas from various jobbers.

With all of them getting their gasoline from various sources, why would they all raise their prices by similar amounts on the same day if they are not all in bed with one another? Market forces would seem to dictate that one or more stations keep their prices lower to attract business from their competitors. After all, how many people are going to buy gas for $2.05 a gallon if they can get it for $1.96 down the street?

While this might more properly be an investigation for federal antitrust sleuths, Stumbo could really do consumers in this state a favor, and take real meaningful action to protect them, if he looked into the everyday pricing practices of gasoline stations. Then he really could boast of significant accomplishments instead of playing up a basically meaningless pursuit of price gouging as if he had walked on water.

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