… is from page 137 of Steven Landsburg’s 2007 book, More Sex Is Safer Sex: The Unconventional Wisdom of Economics [original emphasis]:
When [gasoline] prices spike sharply upward, economic illiterates everywhere are quick to see evidence of collusion or monopoly power among oil companies. In fact, big price spikes are evidence of exactly the opposite. Colluders and monopolists don’t have to wait for changes in supply and demand to hike their prices; they squeeze us to the limit all year round. Sure, changes in demand and supply give them a little more leeway, so prices still fluctuate – but only a relatively small amount.
A monopolist always has price-sensitive customers – because if they’re not price-sensitive, he’ll keep raising his prices until they are. Therefore, even when market conditions change, a monopolist can rarely afford to raise prices very much. Big price fluctuations are evidence of competition.
DBx: Yes. And of course, the same economic reality holds for the prices of other goods and services, including those that spike in the aftermath of natural disasters and wars.
