June 17, 2008
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.
Agreed!
Posted by: Craig March | June 17th, 2008 at 9:43 am | Report this commentHe gets my vote too. I work in Exeter, but in common with many folks who work in provincial towns and cities I prefer to live in the countryside, in my case about 30 miles away. With so many people dependent on diesel it doesn’t take much to trigger panic buying - apparently there were queues at filling stations through the weekend.
What does puzzle me in the speed that folks here travel on their way to and from work, or in search of fuel. Just because there’s very little congestion here doesn’t make it sensible, or even legal, to drive 40+ miles each day at 90 miles an hour in a Range Rover. Though I’ve noticed that many of the vehicles that speed past me each morning have company logos on them, so presumably the driver isn’t paying for the fuel. Do any UK business bother to monitor fleet fuel use?
Posted by: Michael Saunby | June 17th, 2008 at 9:55 am | Report this commentOf course you are right. But most people won’t see it that way, because the petrol vendor is seen as benefiting from the windfall gain.
Perhaps government should replace its vacuous plea of ‘please be good and don’t panic buy’ by a temporary extra tax, the proceeds from which could be used explicitly to lower the tax rate slightly after the dispute is resolved.
For the motorist, a strike creates a prisoners’ dilemma: if I fear you will panic, then so must I. A wise government could break that dilemma. Since that is a vain hope, a retailers’ cartel is a practical possibility.
Posted by: Ian Slater | June 17th, 2008 at 10:04 am | Report this commentI do not agree at all. Nothing deserves a knighthood in profiteering! Tesco might as well raise the price of baby milk to £10. After all, there has been a steady shortage of dairy products since last year.
To think that this ‘Exeter crook’ deserves a knighthood is to condone speculation which, in the first place, has got us where we are.
Posted by: Sylvester Deane | June 17th, 2008 at 12:00 pm | Report this commentI would hate to be annoying but the US uses the American gallon instead of the Imperial gallon meaning that the price in dollars should be closer to $14.76 rather than $18 stated in the article (link). Granted we can still talk about price-gouging and the price differential US-UK still looks phenomenal!
Posted by: Josep | June 17th, 2008 at 12:15 pm | Report this commentPraising him is like praising the person shouting “fire” in a crowd theatre. You confuse the demand for petrol in that particular staion with demand for petrol in the region as a whole. If one station raises price, people will buy from others and may leave that station some petrol unpurchased. But if every station follows suit (why not, you get more profit and hopefully a knighthood), what will normal consumers think? They will not “rationally” reduce their demand, instead they’ll assume price is going to increase in the foreseeable future and the only “rational” thing to do is to buy whatever petrol they could find, at least in the short-term. You don’t need to be an economist to guess whether shortage will be reduced.
Posted by: FX | June 17th, 2008 at 12:29 pm | Report this commentWhat a load of tosh, yes there might only be a shortage as a percentage of total supply, but if you are a tourist in the Devon area, wanting to get home, a few pounds of fuel is not going to suffice, and therefore Ron James is profiting from their situation.
The only way to stop panic buying is to run out of fuel.
Anyway what a stupid conversation, we should be asking why we are not to be compensated by Shell for the disruption caused. Whatsmore, why have the drivers no concern for our resultant predicament. They seem to think that we should all be involved in their pay dispute.
It’s exactly this kind of behaviour that led to the demise of the last labour government and the ascent of Maggie Thatcher. What has the world come to when a lorry driver is demanding £40k a year? Teachers don’t even get that. It’s time this country had a dose of reality. Put the haulage contract out to tender Shell and get the wages down, and whilst you are at it, take 10p a litre off new supplies for a week to compensate all of us for your incompetent management. Fuel is a strategic resource to this country, the next time you mess us around we should nationalise your depot assets on behalf of the consumer!
Posted by: A Wilson | June 17th, 2008 at 2:54 pm | Report this commentWhat the hell is all this whining!
You get slapped by Adam Smith’s Invisible Hand, and it is perfectly clear that this tanker driver strike is working the Invisible Arm, and you blame Ron James because he happens to be located out on the Invisible Fingertip.
You are stupid, and you do not deserve what your ancestors have given you.
Posted by: Troy | June 17th, 2008 at 8:35 pm | Report this commentIn times of fuel “crisis” petrol station should charge a £30 minimum not a maximum. The demand rise is caused by people topping up a nearly full tank not people filling up an empty tank.
Posted by: neil | June 18th, 2008 at 9:01 am | Report this commentThis does appear to come down to simple supply and demand economics. When demand goes up and people are able to pay more then the price can rise to match.
And what happens to an independent like this if fuel does run out and he has to sit for 2 weeks with a garage with no fuel, no profit margins, no additional sales of non-fuel items. A situation that could drive him out of business completely.
Are the customers who want him to keep prices low going to drop in and give him some extra cash to tide him over if he runs out or will they just keep driving to the next petrol station?
Posted by: Andy Warren | June 18th, 2008 at 12:13 pm | Report this commentAt last someone with cojones telling it like it
is.
The rest will send us into the Dark Age.
Posted by: jomama | June 18th, 2008 at 3:10 pm | Report this comment