Why price-gougers should get a knighthood

Poor Ron James is getting a pounding from the tabloids for charging £1.99 a litre for petrol (that’s about $18 $14-15 a gallon, for those of you reading this in the US):

He said: ‘I am trying to stop people panic-buying.

‘People have been buying hundreds of pounds worth of fuel instead of the usual £5 or £6.

‘It slowed down after I put the price up and the result is I’ve still got fuel left.

‘It’s been chaos and it’s still chaos. I’ve never seen anything like it in 30 years of petrol retailing.’

He added: ‘We’re not being mean. I would say I’m a very nice person. The price will go back to normal as soon as we get a delivery.’

But one disgruntled driver said: ‘It’s just greedy profiteering. It’s outrageously high – it’s atrocious. It’s clearly an attempt to take advantage of the fuel shortage.’

I’m going to take a stand for Mr James here.

Here’s the problem: a minor hiccup for fuel supplies in the UK (the result of a brief strike by some tanker drivers) has led to a more severe disruption, because demand has surged. Demand has surged because people are nervous that they may not be able to fill up when they need to; but since the strike has not actually drained much fuel out of the system, the only reason that people may not be able to fill up is because demand has surged.

Here’s the solution: petrol stations should be temporarily raising the price of fuel during the strike to discourage what tends (unfairly) to be called “panic buying”. It would not take more than a few pennies; everybody would be confident that fuel was readily available, and nobody would buy unless they really needed to.

Why doesn’t that happen? Because petrol station managers are terrified of being accused of “greedy profiteering”. They’d rather play politics than do their jobs – which is to make sure they have fuel available when customers come calling. Clearly price-gouging is woefully undersupplied in this market.

Mr James seems to be the only petrol retailer in the country with the courage to stand up and do the right thing. I doubt he is making much money (who would buy £1.99/litre petrol while they had a choice?) and he is being villified. Yet thanks to Mr James, drivers in Exeter know for sure that they can always get fuel if they need it. Mr James is providing the whole city with a valuable backstop. They can sleep soundly at night, knowing Mr James will always be ready to serve them. He’s taking the blame, Exeter drivers get the benefit.

Somebody needs to reward the virtuous. Arise, Sir Ron of Exeter!

Update: Alas, cancel that knighthood. They’ve capitulated… Although in fairness, I suppose the fuel strike is over. Thanks for Josep’s comment: I got my US and UK gallons confused.

Tim Harford’s blog

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Tim, also known as the Undercover Economist, writes about the economics of everyday life.