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Volume Gouging

September 12, 2008, 2:15 pm

I was just volume-gouged on gasoline today in Atlanta.  I was returning my rent car, and needed to fill the tank.   Stations here seem to fear a hurricane-related gas shortage, to the first station would only sell me 10 gallons maximum.  The second claimed to be out of gas.  At the third I was able to fill my tank the rest of the way.  These stations gouged me on volume, simply because they didn't have the simple courtesy to re-price their product upwards in a shortage in order to ensure continued availability of supply.

By the way, memo to news guys -- telling everyone to run out and fill their tanks RIGHT NOW in order to avoid a possible gasoline shortage will only precipitate said shortage.  If everyone fills his or her tank at the same time, this shifts inventory from large regional reservoirs to individual reservoirs (e.g. gas tanks), the most inefficient of inventory storage models.  Having every car's gas tank go nearly instantaneously from 5/8 full to full requires something like 600 million gallons of draw down from retail and wholesale inventory to car fuel tanks.  The system cannot survive that in 24 hours, and the hypothesized shortage becomes a reality.

Postscript:  By the way, the question of whether to run out and fill your tank tonight is a classic prisnoners dilemma game.  We are all better off if no one does it, but each invidividual probably maximizes his or her well-being by deciding to fill up, so everyone does it.

Tags: , , ,
Category: Economics
  • ccoffer

    I heard from people that they had seen gas at 5 dollars in some places north of Atlanta. It wouldn't surprise me to find that there was some city ordinance forbidding station owners from rationing through price instead of volume. Last time there was a super sudden spike, the Governor stepped in and prevented station owners from protecting their ability to replenish inventory, calling it "gouging". I live just a few dozen miles north of Atlanta and I was able to fill up this afternoon.

  • Dr. T

    I find this behavior to be baffling. Why do you need a full tank? If it's an evacuation situation (such as a hurricane heading for the Florida Keys), you already should be on the road. If you don't need to evacuate, then what's the reason for filling up? You shop for what you need to get by, go back home, and wait out the weather. Why spend two hours at the gas station when all you plan to do is drive a few miles to get home?

  • SpinMan

    I'd have taken the day off and bought you lunch had I known you were in town.

  • scraphoops

    This phenomenon jibes nicely with something I have never understood as a resident of Colorado. Forecasters call for 2 feet of snow and everyone makes a mad scramble to grocery stores and cleans them out. There's no price gouging or anything like that, but what the hell? You don't have enough food in your house to survive for three days (I'm referencing the '97 blizzard). And even though the water supply is rarely affected in blizzards, bottled water flies off the shelf. Weird!

  • Bob Smith

    These stations gouged me on volume, simply because they didn't have the simple courtesy to re-price their product upwards in a shortage in order to ensure continued availability of supply

    I doubt it's a matter of courtesy. Anti-gouging laws are popular. Florida has them, and they're really annoying.

  • Frederick Davies

    Assuming politicians or journalists have a grasp of basic economic concepts is a assumption too far. Sad but true.

  • mike

    good advice, except in an actual emergency.

    When a power outage rolled across the northeast a few years ago, I finally realized why fillups are important. I was stranded because the gas stations not only need gas, but electricity to pump it.

  • Jim Collins

    scraphoops,
    I find it interesting that one of our local television stations has it's weather forcasts sponsored by the largest grocery store chain in the area. Once this started any snow in the forecast is now a "Winter Weather Advisory" even if it is just a dusting.