The Deal Behind Gasoline

Intrigued by the economics of gasoline, I’ve been doing a little reading about the oil and gas industry. One book I read was Gasoline Prices in Canada, a report written by the Committee on Industry, Science, and Technology in 2003, and published by the Government of Canada. This report looked into how the gasoline industry is run in Canada and the States, and whether or not price-fixing was a problem. They heard from various industry experts and concluded that rising gas prices were caused by numerous supply-and-demand issues, and that price gouging did not exist. Their reasoning seems sound, but I had two major issues with it. First, all their data came from a think tank funded by the major oil companies (to be fair, the committee acknowledged this, but didn’t seem to think it was a big issue). Second, I don’t think they ask the industry experts the right questions. When dealing with the issue of price-fixing, they heard various responses summarizing how the gasoline industry is one of the most competitive in existence, mainly because their prices are clearly advertised and that people will go out of their way to save a few cents. So if one retailer lowers the gas by a cent, others will follow. But the committee failed to ask about the opposite: what happens when someone raises their gas by a cent? Who are the people who first make that decision? And why does every other retailer follow? I don’t think gas prices are fixed by 6 suits in a boardroom, but I’m willing to bet that prices are always raised by retailers run by the oil companies, rather than the independants. The whole report was suppose to deal with the reasons behind gas price increases, but they stopped asking questions after they heard a few quick responses. I learned a lot, but I’m not sure how helpful it actually was.