Will BP try to raise the price of gas in order to recoup the cost of the mess they created? It seems they could be trying.
In an earlier post about abusive corporate practices, I noted that the price of gas at our local BP station had risen dramatically, and did not compare to the usual variations seen between towns. I stopped by the station yesterday to ask why the price was so high. I was told, as I have been told before, that the price is set by the company. I noted that the price had dropped from 3.01/gal down to 2.93, (still considerably above the usual price difference between towns). This price drop occurred because of persistent emails to BP to drop the price to match area towns. This leaves the price still .10 higher than the lowest price in next town Massachusetts, which was Cumberland Farms at 2.83/gal. This is unusual for our area; the variation is never this high between our town and the next. I view it as an attempt by BP to try to raise the price of gas for reasons other than “market forces”. I can only assume that it is an attempt to draw funds from consumers to help pay for the mess created by corporate irresponsible.
I found this interesting site that gives current gas prices in your area. It was accurate for our local area. It’s a great tool to keep our eyes on what BP is doing in the face of this crisis. Even one or two days of increase prices, could net them a substantial amount of money. I might support them in this effort if they hadn’t hoarded their extraordinary profits while turning their backs on protecting our environment. I would support a company that made their fortune following responsible practices, yet were met with an unfortunate accident. I will not support blind greed at the expense of our country and it’s people. BP can pay for their own mess. We are going to pay for BP’s irresponsible behavior in so many more horrific ways than BP will ever suffer in its bottom line.
Come on. If BP could get away with raising their prices another 1, 5, or 10 cents, they’d have done it years ago.
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p>If they’re raising their prices now, one of two things will happen: (a) other companies won’t raise their prices, and BP will lower their prices or cease to sell retail gasoline, or (b) the gas price is going up across the market.
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p>There aren’t many products which are advertised with 4 foot tall prices in front of 10,000s of consumers each day. It’s a very competitive marketplace — BP can’t charge substantially more than their competitors, and they never could.
at least in some locations. Sure it’s not that it isn’t done. Gas stations at locations near turnpike entrances are more expensive, and the price does vary in different locations, especially isolated areas. What I am saying is that the current price difference is an anomaly for our area. If you want to help BP pay pay for the mess they created, go for it.
In many non-urban markets, gas stations aren’t clustered the way they are in cities. Many gas stations effectively have local monopolies, in that if you choose not to patronize your nearby station, you have to drive 5 miles to the next one. In most cases, it’s not worth it.
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p>Not everywhere in MA is Brookline, stomv. đŸ˜‰
(responding to landll and David)
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p>I’m not arguing that there aren’t local conditions which allow for different pricing. Heck, city gas is often more expensive, since the land is more expensive. Gas near the highway is more expensive, and a gas station not near others (but with lots of gas thirsty cars) can charge more.
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p>The point is…
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p>if they can charge more, they already are. If it’s more profitable to tack an extra three cents on to the price, they’d have done it already. Why wait until an oil spill? Sure, there may be some upcreep in price across the market when something like an oil spill happens to hedge against the possibility of a surge in the price of oil internationally (and hence against a higher price for their next shipment of gasoline).
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p>P.S. You’re right that it’s not worth driving 5 miles to get gas elsewhere, but it’s also usually the case that you could wait until you happen to pass another gas station to get gas in the first place. We’re not talking about “Last gas 100 miles” type situations. Most people drive by dozens of gas stations a day… particularly if they don’t live in the city, which tends to have fewer gas stations per square mile of commercial area than the suburbs.
I can think of lots of reasons. I’m surprised that you’re apparently such an adherent of a Chicago-style perfect market theory.
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p>Just one example: maybe in the past BP didn’t want the PR hit it would take by raising prices, even though it could make more money, since the drop-off in customers would be more than compensated for by the customers who stuck around for convenience’s sake and paid the extra cost. But now, with the spill, they’re like, “the hell with the PR hit, we need every buck we can grab right now.”
Really? Newsflash! Corporations set prices to maximize profits. Corps which don’t make life saving drugs (or otherwise super inelastic demand products) do this each and every day.
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p>Of all items in the marketplace, gasoline is one of the most perfectly competitive. Few people are particularly loyal to a particular brand*, the input stock has a global marketplace with suppliers from all over the world, and the prices are four feet high for everybody to see. Hell, the tax is even included so you don’t have to worry about skew. There are loads of gas stations just about everywhere, nearly all nowadays provide lights, shelter from rain, and credit card payment at the pump. Furthermore, the gauge expressing how much gas is needed is always visible within the car, and people are remarkably good at not running out of gasoline.
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p>Gasoline is one of the most perfectly competitive products in the United States. If there is a skew, it’s that companies like Stop & Shop and Wal*Mart skew the price lower than market clearance price, because they use it as a loss leader to bring customers into the store.
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p> * Sure, some have gasoline credit cards, some avoid Exxon or Citgo, but by and large, folks shop by price/convenience, so long as it’s a major brand.
Yes, they do. Part of being profitable is having the public not hate you.
You’re suggesting that BP could have raised prices a bit higher all this time — for years maybe — but they hadn’t, thereby leaving millions (billions?) of dollars in profit on the table, because they wanted the public to not hate them?
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p>My follow up: has ExxonMobil been doing this? Chevron/Texaco? ConocoPhillips? Hess? Getty?
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p>My other follow up: has the public noticed? That is, if BP raised their gasoline by one penny over the “please don’t hate us” price, would the pubic notice and like BP less? BP would make as much as an additional $150,000,000 per penny increase per year since BP sells 15 billion gallons of gas per year in the USA.
is that you assume that corporations have perfect information about all relevant markets at all times so that they can perfectly maximize profits. Under that assumption, you are absolutely right, and I am wrong. I assume that their information is a bit fuzzier than that, and that there’s therefore some play in the joints. But maybe you’re right.
I don’t make that assumption one bit. I would point out that there is remarkably good information in the industry though.
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p>I do make the assumption, however, that they’re choosing the wholesale price in an effort to maximize profits now, with absolutely zero regard for public good will, as you seem to have suggested.
You have your assumptions, I have mine. đŸ˜‰
Their product is a commodity.
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p>Sheesh, two years ago, when the price of a gallon of gas nearly doubled– the oil companies were, right then, posting the largest profits in the history of business, without apparent embarrassment. They’re not in it for PR, never have been, and never will be.
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p>If the local BP station raises prices by a dime, then everybody that buys there will go to the Hess across the street. Even folks in rural areas have nifty websites that report the closest, lowest prices for this commodity product.
the point is that a .10 to .15 price variation has never been the case between our town and the town nextdoor. Are they just having a computer glitch this week, or are the price checkers on vacation? I think it is more likely to be the result of an attempt to pull in more profit, even if temporary, to help cover the cost of the oil spill.
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p>There has never been a time where our-serve gas station has tried to up the price against neighboring towns, expecially to such a great extent. It’s not going to work. I will, and so will many others, just get gas at some other location.
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p>My worry is that the other towns may now try to raise their prices because BP has. I would imagine that there is nothing to stop them from doing so.
and while you likely have a good feel, you certainly have incomplete information too.
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p>The question is: is this widespread, or an anomaly? There are 100 other possible reasons for a funky spread in one location, ranging from the expected date of next delivery to the boss being on vacation for a week to a particular owner experimenting with pricing. We don’t have any information that BP’s wholesale price has changed unless we see this sort of behavior in a number of locations.
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p>This is exactly my point — folks can and will just buy gas elsewhere. Not everybody, but enough.
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p>They may try. Then again, why didn’t they try this last month? Last year? Four St Patty’s Days ago? There are two ways that the prices go up:
1. The wholesale price goes up. If just BP does it, then we’d expect to see BPs everywhere have higher prices than the Exxons across the street… and we’d expect to see their sales suffer dramatically.
2. The retail markup goes up. If just one station does it, then we’d expect to see this gap across the town line, and folks behaving as you describe above.
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p>Now, if “everybody” tries it, that means that either (1) ExxonMobil, ChevronTexaco, BP, et al all raise their wholesale prices, despite a flat price for the barrel of oil, no known kinks in the gasoline refinery supply chain, and strong reserves. For them to do this without colluding seems unlikely: it’s hard to coordinate that dance without one company arbitraging the wholesale market and undercutting everybody else by a nickel, and seeing sales double in the short term. If they do coordinate, that’s market collusion, and it’s illegal. I’m not saying that it never happens, but we do have attorneys general, the EIA, and other agencies for just that sort of thing. The other way “everybody” does it is if (2) retailers all crank up their markup together. That’s even harder, since the retailers are indie owned franchises, and for them to collude beyond a handful of owners would be outright impossible. The problem with only a handful of owners is… the owner in the middle is OK, but the ones on the edges who border non-colluding owners end up losing their customers to the next town over, so to speak.
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p>So, what stops them from doing so: from colluding, the law. From all doing the delicate dance without talking, it’s just plain hard to pull off because there are so many gas stations and customers aren’t particularly loyal to brand or gas station. Furthermore, many drivers are irrationally sensitive to price — to the point that they’ll drive out of their way to pay two cents less per gallon, never mind that they’d never stop and bend over to pick up the quarter lying on the sidewalk which represents the nominal savings of driving 2 miles down the road (ignoring the extra gas consumed).
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p>P.S. I seem to recall a law on the books in MA which limits how many times an owner can change the price of gasoline in a week. This prevents two owners who operate across the street from doing this dance:
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p>8:00 am: Exxon 2.85, BP 2.85
8:01 am: Exxon 2.88, BP 2.85
8:02 am: Exxon 2.88, BP 2.90
8:03 am: Exxon 2.92, BP 2.90
8:04 am: nothing.
8:05 am: Exxon 2.90, BP 2.90
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p>The two owners never colluded; their only communication was the four foot price sign outside their stores. Still, this is an example of the kind of thing regulators try to avoid from happening, and one way to do it is to limit the number of times per unit time (day, week, whatever) that a gas station can change their price.
Here’s a website that claims to list the highest and lowest gasoline prices in MA. You can also search more locally.
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p>Mapquest also has a site to search within a town.
Mobil often uses low gasoline prices to attract shoppers to their “On The Run” markets; where snacks, cigarettes, and lottery tickets, provide the majority of the station’s revenue. Big box stores like Costco and WalMart are selling gasoline at lower prices by eliminating the frills, no credit cards(expensive to the retailer) and only self-serve. Similarly, part of the profit equation includes volume. Where lower a margin increases volume, profits remains stable. There are many factors beyond just supply and demand at play in the pricing of gasoline.
but the markup from wholesale to retail is typically about a nickel. That doesn’t leave much room for play.
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p>The Costco/Wal*Mart model is to use non-name-brand gas which is a few cents cheaper, and then use it as a loss leader (or no profit) to bring people in the store… as mentioned upthread. Stop & Shop does something similar. The “On the run” markets make money to be sure, but again, you’ve only got a few cents “in play”. With such a small markup, it’s hard to make it up in volume: cut the price by two cents and you’ve got to sell almost twice as much gas. That’s a huge difference in volume.
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p>Each business will try to find some way to distinguish themselves. Some even use car washes. At the end of the day though, it’s tough to do… it’s gas, and we Americans like it cheap.
…is what I’ve been noticing lately. As the stock market sinks, crude oil prices have gone from $86 per barrel to $75 per barrel, which gas prices are rising steadily to the usual summer time highs–no doubt way north of $3 a gallon by July 4th.
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p>Yes, I understand that there is a time lag between today’s crude oil prices and prices at the pump…about 6 weeks they say. But really, they (oil companies and the lackey PR analyst that support their talking points) are playing us for fools. There is no connection to supply and demand with regards to gas prices. Let’s remember in 2007, when crude oil prices went from $75 a barrel to $150 a barrel (and the accompanying $4 a gallon gas) and then back down to $75, in the span of 10 months–yet did global demand suddenly increase 100% and then decrease 100% all in the same time period…of course not (in fact it was the start of the recession and in fact demand decreased while prices shot up).
The price of crude oil is no longer generated based on fundamentals or “supply and demand”. A lot of the buying and selling that goes on on wall street is computer generated. There is also the opportunity to bet against the price, so that they win if it goes up and they win if it goes down. I have been saying for a long time now that our Stock Market is no longer based on the state of our economy or the reality of health of our country and it’s people. It’s a self-propelled entity, run buy various computer programs which buy and sell based on various indicators and models of past perfomance. It is a frightening reality, since these software programs ultimately form the price that all of us must pay for commodities and other essential products. I blame this for a huge part of preventing our economy to return to a healthy state. We keep hearing that since our stock market is healthy, so is the country. That couldn’t be farther from the truth. They are so totally disconnected these days that how the market is doing is irrelevant. It simply means that some people are using money to make money. They aren’t using money to create jobs, or to create products or services.
You’re absolutely right that retail prices bounce up immediately in response to rising crude oil prices. That is because the station owner can’t get stuck with insufficient cash to but the next truckload: if they let their prices get too far behind the curve, they will get their clock cleaned, because they will have to use their small profit from the previous truckload PLUS a lot of cash out of their pocket to buy the next. Then, since prices are regulated, their profit on the next load will be exactly the same as it is for the first, a few cents per gallon. That is why gas station owners get KILLED when prices rise as steeply as they did two years ago.
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p>Retail price doesn’t just track the market price of crude though. This time of year, the market price of crude should be falling, because the winter heating season is over and the summer driving season hasn’t begun. But gasoline refiners also switch to “summer” blends, which have special restrictions. That means they want to sell every last drop of “winter” blend (fewer restrictions) before the summer stuff is required. That creates a restriction in supplies as they get down to the end before the switchover.
Price is determined mostly at a much higher level than your local station. The station owner must keep in line with the other stations – get too far out of line and sales go down and the supplier frowns at you for not pushing the product.
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p>Anyone remember $4.++ gasoline of a couple years ago? There was no supply problems. No demand problems. Just the futures market manipulated to raise the price of the product. (No investigation there.) The ultimate price is far above the control of the final merchant.
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p>The branding of petrochemicals is more marketing than reality. The stuff pumped into your car or your oil tank at home can come from anywhere. This keeps the costs of transportation down (or profits up) as only one pipeline or a few barges satisfies many suppliers. Yes, each manufacturer uses different methods to break the crude, but the end product is the same.
The poor guy down the street whose convenience store I was filling up at semi-regularly just converted from Getty to BP two weeks ago.
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p>It occurs to me that we could really move the discussion forward if we started to refer to costs that get passed through to the consumer — as will the cost of this cleanup — as “taxes”.
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p>Meanwhile, here’s a map of Citgo gas stations in MA.
That map doesn’t have the one right in Kenmore Square. You know, the Citgo station right under the giant neon Citgo sign.
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p>What? You mean there isn’t a Citgo station under the sign? There isn’t a gas station there at all? Huh. How very Bostonian to have a giant sign telling outsiders exactly where something is, and then lo and behold, it isn’t there.
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p>:P