Episode 25: Three Cheers for Price Gougers! (Part 1)

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Florida, Georgia and other states have enacted laws against “price gouging” at the gas pump. What is price gouging? It’s a term used by politicians to describe high prices, especially gas prices, that are charged in times of shortage. The problem is that they’re ignorant of both economics, and of the realities of the gas business. The gas station owners profit margins on gas are razor-thin--they charge less than 10% over wholesale, and from that must pay the 3% fee charged by the credit card companies, as well as the costs of their own business. About 1% of the pump price actually goes to the gas station owner. That’s why 75% of gas stations are also convenience stores in the US. The price at the pump is sharply restricted by competition between gas stations. In times of crisis, like the recent hurricanes, there is a sudden massive increase in demand. The law of supply and demand dictates that prices must rise in that case. In part 2, we ask whether that’s such a bad thing.

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