The Coastal Post - May, 1996

The Process Perspective And The Price Of Gas

BY STEVEN E. WALLIS

Am I the only one who noticed that the prices went up at all of the gas stations pretty much at the same time? One would think that in an open, competitive market situation that these gas companies would be competing for our business by keeping their prices as low as possible despite their alleged needs to raise the prices (we won't go into the current high level of oil company profits). Instead, it looks like they are competing for our money by jacking the prices up as quickly as possible. Are they trying to get all they can out of the golden goose before it gives up the ghost?

Is this a monopoly, or what? No, actually it is not a monopoly because there is more than one player. As I understand it, there are three gas producers in the area (whom you would think would be competing for our business). Since they are cooperating with each other against us, instead of competing against each other, they qualify as an oligopoly; an organized consortium, a cartel.

I was under the impression that such organizations, which dominate the market to the detriment of the consumer, were illegal. Perhaps I was mistaken, but didn't the Taft-Hartley Act (and its subsequent improvements) prohibit this kind of thing over a 100 years ago? Apparently not.

It is high time that this country realized what well paid economists have understood for years; that the fewer competitors there are, the more cooperation there will be (either implicit, or explicit) between the so-called "competitors."

As everyone understands, our wonderful capitalistic system can only function efficiently when there is a fair and open market consisting of many buyers, many sellers, and a full and free exchange of information. The fairy tale that the boards of directors of these oil companies would have you believe, is that you are part of a fair and open market, and that if you get screwed, it is because somebody else is doing better at their job than you, and you deserve to be screwed. In fact, if you believe them, it's good for the economy if you get screwed. Not so.

If there is a monopolistic or oliogopolistic situation in the economy (such as we have with our gas producers and suppliers) it can be graphically demonstrated that the profits of the corporations will be higher and the profits of the mass of citizenry will be lower. Not only that (oh, my unsuspecting students of Economy 101) but it can be graphically demonstrated that when there are fewer competitors producing and selling the product, then it is worse for the entire economy. And that includes you, me and the government, the neighborhood deli, the paper boy, college students who would like to get jobs, almost everybody. In fact, the only ones that it is better for are the oil companies, and their owners.

In situations where a more obvious monopoly exists, administrative oversight is required by an elected (or sometimes appointed) board. PG&E;, for example, has to answer to the Public Utilities Commission whenever it wants to raise its rates. This way, corporate profits are limited (boo, hiss) but public profits are protected (yea!). As it stands, we do not have any regulatory method for an oligopolistic situation. The recent exorbitant hike in gas prices highlights our need for some method to control this virtual monopoly.

One method for control might be oversight; say a publicly elected person or two to serve on each board of directors. Another method might be ownership; we could nationalize a percentage of each firm with the profits going toward socially beneficial goals. Yet another direction could be encouragement; where the government acts to encourage the development of more competitors. Not the same people doing the same thing under different names, but new players in the market (maybe even some new energy sources?).

Each of these ideas has bad points as well as good. Also, most of these ideas won't be popular, especially with those on the boards of these firms. Finally, I am not claiming that these are the only ideas because I don't know which would be best; something totally different, or a combination of them might be the answer. All I know is that some public debate had better happen before this sick and twisted parody of honest capitalism takes us for everything we've got.