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How Times Change at the Pump

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Current concern over the run-up in gasoline prices calls to mind an attempt in 2002 in Virginia [2] to keep prices at the pump from falling. Local distributors for ExxonMobile, Texaco, BP, and other major oil companies asked the state legislature to protect them from the low gasoline prices charged by Sheetz [3] and Wawa [4], two innovative companies that operate conveniences stores on the east coast.

This effort to pick motorists’ pockets [5] at the pump happily failed. (But just barely. The bill that would have restricted gasoline-retailers’ ability to cut prices passed in one house of Virginia’s General Assembly before failing in the other.)

The allegation by those who supported this bill was that Sheetz and Wawa would drive their competitors into bankruptcy and thereby monopolize gasoline retailing throughout the state. The result would be higher prices in the future. Even ignoring the fact that Sheetz and Wawa were not even accused of conspiring with each other, this charge of predatory pricing, like all others, doesn’t make sense.

One of the many reasons this charge makes no sense is that ExxonMobile, BP, and the other major oil companies each have especially good knowledge and incentives to give their local distributors the resources these distributors would need if it were the case that Sheetz and Wawa, deluded by dreams of monopolistic grandeur and profit, started a predatory-price war aimed at bankrupting all other gasoline retailers. Successful companies don’t waste their resources on efforts doomed to fail — and any attempt by Sheetz and Wawa to keep distributors of the likes of ExxonMobile and Shell out of Virginia would fail as surely as would an attempt to run an engine on Kool-Aid.

Even William Baumol [6], who endorses active antitrust policing against predatory pricing, admits that actual cases of predatory pricing “are very rare birds.”

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