Would a Boycott Reduce Gas Prices?

A reader writes:

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 prices?

A boycott of one or two gas companies could actually increase prices, since there would be fewer places to buy gas. 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. (Source: EIA, A Primer on 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.

For more on this topic, read Why Gas Prices Are So High.

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• Crude Oil Prices Definition
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• Gas and Oil Prices - How Oil Prices Affect Gas Prices