A Guaranteed Way to Lower Gas Prices

 

Gas prices are higher than they've ever been.

Oil company profits are higher than they've ever been.

Doesn't that just make you angry at those rapacious oil companies?

I'm angry, alright, but not at the oil companies. They're just doing what they're supposed to be doing, which is making as much money as possible, by charging as much as they can possibly get away with. So I'm not angry at the oil companies.

I'm angry at you.

There's only one thing that keeps prices down, and that's competition.

One of the ways you can see the effect of competition is in what are called "commodity" items. These are things made by several companies but one isn't really all that much different from another. Here are a couple of examples:

Back when Bell Telephone had a monopoly on telephone service, they charged pretty much whatever they wanted (with some limitations, under "public utility" rules). Long distance calls cost a fortune, as did using your phone too much.

After the telephone system was deregulated, prices plummeted. The generation growing up today doesn't even know what a long distance call is.

Another example is an anti-inflammatory drug called Naprosyn. While the patent was held exclusively by one company, it cost about $1.50 a pill. The week after the patent expired and naproxen sodium became a commodity that anybody could make (the brand name is Aleve now), the price dropped to about a dime a pill.

Bread and milk are commodities, as are aspirin, blank CDs, light bulbs and copy paper. All of these are cheap as hell, selling for barely above the cost of their manufacture and distribution, because nobody in his right mind would pay a premium price for any of these.

Same for airline fares. After the industry was deregulated, air travel became a commodity. Hundreds of thousands of people fly every day, day, and since consumers have so many choices, the only thing airlines can compete on is price, and that's why prices are so low and the airline companies can barely stay afloat.

Which brings us to gasoline. The reason gasoline is so incredibly cheap is that it's a pure commodity, made by a dozen different manufacturers, and it's all the same stuff. Hundreds of millions of gallons are sold every day, and since consumers have so many choices, the only thing manufacturers can compete on is price, and that's why the price is so low and the oil companies can barely stay afloat.

Hey! Wait a minute!

What the hell am I talking about!

As I write this, regular unleaded gasoline is selling for $3.11 right across the street and last year Exxon reported the highest profit of any corporation in the history of the planet.

I must have made a mistake in this analysis. Let me back up.

Let's see: Gasoline is a commodity? Check.

Consumers have many choices? Check.

The only thing manufacturers can compete on is price?

Nyyaaakkkk….!

Let's go back and talk about aspirin again.

Aspirin is acetyl salicylic acid. Period. There's only way to make it. Period. One brand cannot possibly be better than another.

A bottle of five hundred aspirin at a discount store under its house brand label costs about three bucks. A bottle of Bayer costs nearly twice that. A bottle of discount store ibuprofen costs about four bucks. Advil is over ten.

But if you hang out at a store where both are on the shelves, you'll see people buying Bayer and Advil. You'll also see them buy Tylenol instead of generic acetaminophen.

This isn't good thinking.

It's good advertising.

Good advertising is when somebody convinces you to buy something you don't need or pay more than you should.

Drug manufacturers spend hundreds of millions to convince us that one brand is better than another, and we (literally) swallow it, even though it's complete bullshit. It has a lot to do with the fact that in the United States it's pretty much legal to lie in an advertisement.

Which brings us back to gasoline. People interviewed on television say that they'll do anything to get those prices back down.

Anything, that is, except use their brains.

Last week I stood on a street corner for half an hour. From this street corner I could see four different gas stations less than a sand wedge apart from one another. The prices for unleaded regular were $2.91, $2.97. $2.97 and $3.07.

Roughly half the people buying gasoline went to the station selling it for $2.91. The rest were about evenly divided among the other three.

Now, you might think, Hey: Not bad. Most of the people were buying the cheap stuff.

Which is true. But I was thinking something else:

Why in the name of all that's holy was anybody buying it at the more expensive places? Are these people completely nuts?

The cheap place was a Valero station. The other three were Exxon, Shell and Chevron.

Exxon is currently about the most reviled major corporation in America . Yet people were lining up to buy their gas, which was more expensive than at another station directly across the street.

Why? Because people will believe damned near anything they see in an ad, including that one brand of gas is better than another.

They believe it so strongly that they'll pay more to get it. They'll believe it even when they're shown video footage of a refinery in Long Beach , CA , that shows gasoline delivery trucks from seven different oil companies filling up from the same spigot. These are not off-brand companies, either; they're the big names you recognize.

So people will do anything to get the cost of gas down: they'll riot, threaten to topple administrations or lynch oil company executives…

What they won't do is what consumers have always done to get prices down: Buy from the guy who sells it at the lowest price, and don't buy from the guy who sells it at the highest price.

You see, businesses respond to pressure.

Not pressure from editorial writers. They usually don't give a damn about that. Don't believe me? Then consider Exxon, which has taken a lot of heat lately. They're so scared they just paid their CEO $150 million to keep doing what he's been doing.

The pressure they do care about is from consumers who stop buying from them. But when it comes to gasoline, we don't seem willing to do that.

This why I’m not mad at the oil companies.

It's why I’m mad at you.

(I'm not mad at Hummer owners, either. If they want to drive vehicles that get eight miles per gallon and they're willing to pay for the gas, that's their business. They don't bother me. It's Hummer owners who pull up to Shell stations who piss me off.)

Alrighty, then: How do we lower gas prices?

Simple. Buy the cheapest gasoline in your area.

If you have to drive three extra miles each way to buy it, drive the extra miles.

If you have to wait in a longer line to buy it, wait in the longer line.

If you've always bought Exxon and the Thrifty is cheaper, buy the Thrifty.

What will happen if you follow all of these guidelines?

Nothing. But if every other driver in the country does the same, plenty will happen.

Gas prices will plummet. They'll plummet to the point where we'll find out where the real profit threshold is.

Afraid the oil companies might get hurt and go out of business? Consider this:

If Exxon had dropped the price of every gallon of gas they sold last year by a dollar, they still would have made a profit.

So relax. And pass this on to 225 million of your closest friends.

*   *   *

 

As long as we're on the subject, here's a thought to drive you crazy (no pun intended):

Making vehicles more efficient isn't the answer. It won't make any difference. The reason I know this is because we've already done that, and guess what: It hasn't made any difference.

Average vehicle gas mileage in this country has skyrocketed in the last twenty-five years. Which is pretty cool.

But we're using a lot more gas anyway.

"Ha!" you say. "That's because we have more cars!"

Well, that's true. But here's something you might not know:

In 1980, the average car used 535 gallons of gas per year.

In 2005, the average car used 535 gallons of gas per year.

That's why increasing efficiency doesn't make any difference. Every time we boost mileage, we drive more miles.

Good night and good luck.

 


 

from: A Practical Guide for Everyday Living, by Lee Gruenfeld
* © Copyright  2005-2007  by Steeplechase Run, Inc. - All Rights Reserved

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