Friday, September 26, 2008

The Gas Shortage Spreads

It seems the lack of gasoline at gas stations is spreading beyond Nashville, Atlanta, and Tallahassee. This article beats the price gouging drum, claiming that it's price gouging if "the station is making more profit on gas than they did before the governor declared a state of emergency." How is a consumer to know how much profit a station is making? When gasoline is scarce, the price of gasoline as an input goes up. And what if the station is currently selling gasoline that it bought for $3.50 per gallon, but replacing that gasoline will cost $4.50? To what input cost should we compare the current price? Most importantly, if we limit the price that gas stations can charge for gasoline, should we be surprised when they sell out? A high price encourages consumers not to rush out and buy gasoline in a panic. 

It's still not clear why some places are having these shortages and others are not. It's no longer restricted to state capitals, so that shoots down my earlier hypothesis. I think it is very likely that price-gouging laws and enforcement are responsible, but I do not understand the geographic pattern of shortages.