Price Gougeing

Trudeau was one of the worst things to have ever happened to Canada. We
continue to suffer to this day and well into the future because of that man
(seems a bit too nice a word to describe him).

I honestly say that I did not pay any attention to the rest of the country's
prices at that time. Mainly because I was just too young to care and I
didn't travel outside of the Maritimes at the time.

We're usually between 15¢ and 20¢ a litre higher than the price in Ontario.
I believe we need to build a pipeline from you to us, so that we can have
some of that cheaper Alberta oil <g>.

On a more disheartening note, the radio staions here just announced that
some gas stations are now selling regular self serve for 148.9¢ a litre.

It's just my feeling that we're being robbed and that it's legal to do it
this way (with the government helping out as much as they can with the crime

I know, but I have to purchase some fuel today to go to work.

I have to say that, you and your very comprehensive site are thorough.

Brian

 

I see no great mystery here.

- Gas is sometimes sold as a loss leader, particularly by stations
attached to convenience stores, as the profit margins for convenience
stores are relatively generous.

- A gas station owner with some cash to burn might well embark on a
little price war, particularly when prices peak, to put some pressure
on competitors.

- During a surge in gas prices, it may be profitable in the long run
to sell gas at a loss in order to build customer loyalty.

These all boil down to the simple principle that it sometimes makes
economic sense to sell a product at a loss for a short period.
Happens all the time, and a "crisis" is an ideal time to do it, since
you get free advertising from media attention and word of mouth.

--
Michael Wojcik

Unlikely prediction o' the day:
Eventually, every programmer will have to write a Java or distributed
object program.
-- Orfali and Harkey, _Client / Server Programming with Java and CORBA_

 

Well, the above mentioned Mobil station has gas once again and their price
is holding at $2.899. The Gulf next door has since raised prices again and
is now at $3.299 as is the Sunoco up the road. The Stewart's Shop is still
at $3.499.

 

Well, this station doesn't have a "Mobil on the Run", just a cash office
that sells smokes, soda and gum.

Yesh, I've seen that at a nickel. But it being all the Mobils in this area,
I wonder if Mobil home office is doing some subsidy.

Well, with all the small margins people have been quoting that gas stations
have, that's just too big a loss for me to accept this as a reason.

See above comment.

This also leads me to think Mobil Corp may be behind the price hold of the
Mobil stations. Just too many of them under different management to not be
organized on a larger scale.

 

Yup, appears to be coming from home office. Found a press release that
confirms it.

http://tinyurl.com/agmxa

What I found to be the most relevant part of the release (in regards to this
thread)...

"
ExxonMobil is making branded fuel available to its independent retailers and
distributors at wholesale prices below the spot market and NYMEX gasoline
prices. The vast majority of Exxon and Mobil service stations are operated
by individual dealers and distributors who purchase their fuel products from
ExxonMobil and set their own retail prices.

"

It appears that many (at least here in my area) are going along with
ExxonMobil's wishes.

 

Not a perfect analogy, but close enough...

Some of the things you mention here are acually expenses, to be taken
BEFORE your "profit" is calculated - such as building that fence.

 

I find it hard to believe that all of the different companies can come up
with the same LOH rate and have the same G&A and operating expenses per
gallon of refined product. One would assume those with the higher volume
would offset the LOH rates lower.

Yet, when one drives down the street, company a,b and c all have the same
relative retail price. Collusion?

 

funny, ain't it.

omg!!! kill the heretic!!! no, collusion would be illegal...

 

No, just that operating margins are about as low as they can go.

There IS a floor, you know. People forget this. They tend to think that if
prices are not highly variable for a commodity, that the suppliers are
colluding.

 

Depends on your jurisdiction. Canada does not allow mortgages, roofs, or
fences as personal tax deductions. Even your kid's braces are not
deductible if you make over about $25,000 per year net.

 

<enter the name of your deity here> forbid

 

Yes, but margins are built off of COGS. I work for a fortune 500 company,
and we have sites all over the world. Even amongst sites no one can agree
on the exact same accounting methods for figuring LOH and calculating
operating income (or loss).

I cannot believe all oil companies have the same operating expenses, as cost
per unit produced is based on too many factors, with one of the main drivers
being volume. If company A refines 100MM gallons a week, and Company B
refines 150MM gallons a week, the overall cost per unit should be driven
down. If it is, it sure isn't seen by the consumer.

Price for the oil is only one factor. Operating expenses, LOH, city, state,
local taxes, health insurance is just a small example of all overhead that
the higher volume manufacturer can use to drive down these other costs in a
commodity business.

Higher volume means more personnel, which means better bargaining for health
insurance, lower prices for volume of ingredients for processing (except the
oil, of course), lower cycle time and more inventory turns. If this isn't
happening, then someone is not doing their job.

 

True.
But, the biggest determining factor is what the guy across the street is
selling the same commodity for.

 

The discussion revolves around how stations supposedly make only pennies on
the gallon. If that is true, then all are paying the wholesalers about the
same. The distributed price from all suppliers should not be the same.
There is no true competition in the industry.

 

selling price, yes, but not cost of operations, and therefore net
profit. net profit between two operations/should/ be different!!!

 

They do. That's the reason they all operate convenience stores and car
washes. Margins are a lot higher.

You're making a fundamental mistake here in assuming that competition is
manifested as price differentials. It is not, if margins are already very
low, as they are.

In this case, the effects of competition have already been realized. If
there were no competition, the oil company would have margins more like
Microsoft. 27% vs 9%.

 

Not necessarily. It's just that in this case prices are as low as they can
go without exposing the industry to possible destruction.

Various governments have already investigated the oil companies many times
over the years, and have failed to find ANY evidence of collusion at all.

Yeah, I know what the conspiracy theorists are going to say, "But the oil
industry has the government in its pocket!". The shenanigans of self-
appointed crusaders like Eliot Spitzer ought to put that silly notion to
bed.

 

Sure.
But we *are* discussing pump price, aren't we?

 

True competition will foster competitive pricing, of which there is none.
Not every operation has the same expenses, and thus, the same cost per unit
produced, as previously explained.