In this morning's local paper (the Watertown Daily Times if you must know) is a story of 15 gas stations in New York state being charged by the attorney general's office with "price gouging" in the wake of Hurricane Katrina. The story is full of the usual problems with the term, including the arbitrariness of any definition of gouging and AG Elliot Spitzer's call for a federal investigation. But the best part is the detail on the charges against a station here in St. Lawrence county about 10 miles up the road from me.
It's worth knowing that this station is relatively new and is out in the middle of the country. As a result, it tends to have slightly higher gas prices but has brought gas and a convenience store to an area that had nothing. And many folks have been happy to find it there, and willing to pay a bit more for the convenience, not to mention a clean set of bathrooms in the middle of the country.
It turns out that the owner ordered gas from his wholesaler on Sept. 2 at $3.68/gallon, leading him to raise his pump price to $3.80 for the week. The wholesaler was unable to deliver the gas the next day, by the end of which the wholesale price fell to $3.39/gallon. The station owner assumed he would still pay the price he contracted for and thus kept his retail price at $3.80. That 41 cent difference was enough for Spitzer to act. What's interesting is that the wholesaler has leapt to the defense of the retailer by telling the AG that "we waited until the following day to deliver since it would be cheaper for the customer"! Moreover, Sept 2 was a Friday, so as the wholesaler points out "my department doesn't work Saturday or Sunday [so] the first time [the retailer] would have known [about the lower price] would have been Monday morning September 5." So, bottom line, this retailer is paying a fine for "price gouging" because the wholesaler did him and his customers a favor by waiting a day to deliver gas when it was cheaper and because the retailer assumed his contract at the original price would stay in force. The wholesaler does him a favor, one favoring consumers, and he assumes his contract will get upheld, and he gets charged even though there appears to be little way he could have known that he'd been billed the cheaper price.
But wait, it gets better. The owner of the store also reports that over the weekend when his price was at $3.80, his sales dropped significantly. He sold 1358 gallons on 9/2, 738 gallons on 9/3, and 429 gallons on 9/4. This was also Labor Day weekend, when lots of car travel happens. His sales didn't reach 1000 gallons again until 9/9. So the result of his supposed "price gouging?" A drop in sales! Gasp!! Demand curves slope downward after all! As the owner says in his defense "why would I purposely gouge somebody and watch my sales drop?"
The response from the AG's spokesman: "Consumers paid a markup over the three days. They had to pay the retail price he asked, and they did." They "had to pay" it? Evidently they did not, given the drop in sales the owner saw. Yes, he's located out in the country, but his price was so out of line with other prices that many consumers (gasp again!) found another retailer that weekend. Some chose to buy there, of course, but it's not like they had a gun to their head or no other options (there are 3 very competitive gas stations 7 or 8 miles down the road in my town). Notice how the AG's office treats consumers as passive victims, even though the evidence clearly shows they made active choices in the face of high prices.
The other irony here is that the very same paper just yesterday ran a story about how gas prices here in St. Lawrence county are the lowest in the are precisely due to an influx of new competition here in Canton - those very same group of stations just 7 or 8 miles away from the supposed gouger. Of course this is all really about picking on the little guy. This station is not a chain store - he's a local guy who opened up this business in the country much to the delight of many folks. He doesn't have the resources to fight the AG's office even if he's in the right, so he just caved and paid the fine (which was actually rather small).
Frankly, I think charging stations with price gouging under these circumstances and then putting them in a position where they have to pay the fine no matter the evidence is precisely the sort of extortion that the AG's office is claiming to protect "us" against in the case of price-gouging. But who the hell is going to investigate them?