A reader asks:
I was always taught that competition is the best way to influence prices. That being said would it make sense to boycott one or more gas companies in an effort to bring down high gas prices?
A boycott of one or two gas companies could actually increase prices. Why? First, there would be fewer places to buy gas. Second, those companies that were boycotted would simply sell their gas to those that weren't boycotted, defeating the purpose.
Could a boycott of all gas companies reduce gas prices? Only if it reduced demand for oil enough to lower oil prices. That's because gasoline accounts for only 20% of each barrel of oil. Oil companies would still profit from the non-gasoline parts of their business, such as jet fuel, heating oil and other industrial uses. Therefore, even if consumers could conceivably stop 100% of gasoline use, oil prices might still only decline 20%.
Could a gasoline boycott force gas prices down even if oil prices stayed high? Probably not by much. Oil prices account for 55% of the price of gasoline. The rest is made up of fixed costs, such as distribution costs and taxes, which don't change quickly. (For more, see How Oil Prices Affect Gas Prices)
An additional complication is that the price of oil is being driven up by commodities traders, rather than supply and demand. These traders are creating a bubble in oil and food futures much like that experienced by the housing market in 2006. For more on how this affects you, read Why Oil Prices Are So High.
The only real way to lower gas prices is to lower demand for gas and oil over a long period of time. Since the U.S. consumes 25% of the world's oil, a concerted effort might convince commodities traders that oil was a bad investment, thus allowing oil prices to return to pre-bubble levels.
Comments
Kimberly,
You are quit right. Boycotting only one or two companies does not resolve the issue of rising oil (and consequently gasoline) prices. However, reducing the aggregate demand for gasoline does force oil prices down. If people simply demand less gasoline, Economics 101 teaches us that the price of its raw material (oil) will fall. Alternative fuels (i.e. ethanol) are feasible but not from that goofy corn subsidy program that affects the food chain. The US charges a duty of $0.52 per gallon on ethanol from Brazil (made from sugar cane). Reducing or removing this duty would help BOTH Brazil and the US economies. It’s time for the US to reduce its “addiction” to oil and gas guzzling vehicles.
I wasn’t aware of the boycott grassroots movement until I saw it last night on the news. I think the strategy of boycotting buying gas on a particular day won’t work because people will still fill up one day before or after. The gesture is noble but futile. What people should do instead is boycott one particular company for a quarter (3 months) . This way one company will feel the financial pain of masses of clients boycotting them. They will hurt bad and might lower prices to attract clients back or it will just collapse their share price when the lack of revenue is reflected in their quarterly report. Share price tanks and the CEO and the execs will pay!
Just a thought.
Don
I agree with Don. You can say what you want but if we don’t take some action the priced will continue to rise. A boycott of one company will force it to lower prices. The reward for lowering the price is increased business as the second phase of the boycott is enacted. In this phase we boycott all other stations except the first one. All this boycott does is exaggerate the effects of normal competition. Let’s do this on a national scale.
Here is my idea and solution. I think someone maybe myself should start an investment firm or hedge fund. Then ask every citizen who wants gas prices to drop to invest a minimum of $10 and a maximum of $100. The money would go into buying perhaps a controlling stake in a small or mid sized gas station company or franchise. Then agree to set a price that is more affordable to all. Even if it means undercutting the big oil companies. The profits will go to expanding and dividends will be paid to all stockholders. Compensation for any executives will not nearly be as ridiculous as the other company executives. That’s just my ideas, I am sure its not that easy to be done but I know it hasn’t been tried before.
I understand that there is always an action and a reaction, therefore, i believe that we as consumers need to put our foot down. The cost of oil per barrel has now decreased, now gasoline prices need to go down along with it. I think that we as customers need to let gasoline distributers know that we won’t be taken advantage of any more.
one oil company boycotted for 30 days would be economically intolerable for the company ,next company on the list would definitely think twice about price increases… economic impact on oil companies does work