Thursday, June 05, 2008

Healthy Competition in the Free Marketplace

A few miles from my home is an interstate junction where sits a cluster of three gas stations, a Raceway, a City Gas, and a BP. They periodically engage in price wars, underbidding each other by pennies per gallon of gas. This is a benefit to the customers and I frequent whichever station originates the price war. The lowest their prices have been lately is $3.73 per gallon.

A couple of days ago, a new Wal-Mart gas station opened at the same intersection. While I am sure it is an "introductory" rate, their gas, per gallon is $3.66. Of course, the lines at their pumps were long and the other three were seeing fewer cars at their own pumps. So there prices began to slowly drop. Penny by penny. Until this morning when I drove through to find that Raceway is $3.66, BP is $3.68 and City Gas is $3.66 (and I am betting that City Gas will be $3.65 by the time I drive through on my way home).

This type of pricing war proves to me that gas stations do not HAVE to sell their gasoline at as high a price as they do. I am certain that at $3.66 (a full $.07 lower than this time last week) they are still making profit. However, if it were not for the new station, they would be making MORE profit and we would all believe nothing was really wrong.

To further throw a monkeywrench in the works, the gas station (Shell) just over the bridge past this little cluster sells its gasoline for $3.86 per gallon - a full $.20 cents more! Somehow I don't think we can blame all of the increase in gas prices on the war in Iraq or OPEC prices. There are some red-blooded Americans out there who are making healthy profit in the free marketplace.

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