Going Back To Fundamentals In The Gasoline-Price Debate
June 28, 2000
Economists recommend that those who throw around terms such as "collusion" and "price gouging" when discussing gasoline prices today abandon that rhetoric and apply some logic to the issue.
Here are a few fundamental facts they might want to consider:
- If "big oil" is a cartel and the major companies are in collusion, why did they wait for OPEC to interrupt supply before raising prices -- an action they could have taken last year or the year before that if they had the power critics ascribe to them.
- If the oil industry had the power to keep gasoline prices above their normal competitive level, we would see uniformly high prices -- not dramatic price swings.
- Middle East crude-oil producers have restricted their output to the point where crude prices have roughly tripled in the past 18 months -- while the law of supply and demand continues to function.
- Higher gasoline prices encourage greater production -- while lower prices only encourage greater demand.
Source: Steven E. Landsburg (University of Rochester), "Criticisms of Big Oil Don't Add Up," Wall Street Journal, June 28, 2000.
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