What Constitutes Price-Gouging in the Oil Industry?

With gas prices passing $3 a gallon, accusations of price-gouging are common. But what exactly is price-gouging? How is it defined? And are the oil companies guilty of it?

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News that oil companies are once again posting huge profits has been greeted with loud protests, especially from members of Congress. Both Republicans and Democrats have suggested penalizing anyone who takes advantage of the imbalance between supply and demand. But as NPR's Alex Markels reports, going after those who raise prices may have more to do with political posturing than with keeping a lid on gas process.

ALEX MARKELS reporting:

Ask the folks pulling up to the Chevron Station near Washington's Watergate Hotel how they feel about paying $3.30 for gas, and the same word keeps popping up.

Unidentified Male: Gouged, really gouged. It just seems like a price gouge. I defiantly feel like I'm being gouged at the gas pump.

MARKELS: Like a lot of his fellow customers, Ben Fuller(ph) thinks he knows who's to blame.

Mr. BEN FULLER: Oil companies have windfall profits while they're saying they can't do anything to give us an easier time at the pump.

MARKELS: That kind of frustration led a group of congressmen together at a BP station on Capitol Hill last week to talk up their ideas for fighting soaring gas prices. Along with proposals to open new areas to drilling and reduce restrictions on fuel mixtures, the congressmen, who pulled up in two hydrogen-fueled minivans, called for federal legislation to help keep consumers from getting taken at the gas pump. House Speaker Dennis Hastert thinks it could make a difference.

Representative DENNIS HASTERT (House Speaker): We will ask the Federal Trade Commission and the Attorney General to make sure that there is no price-gouging, that there isn't any manipulation of the prices. There's no magic wand, but we do those things, I think you can see almost an immediate drop in the fuel process.

MARKELS: Florida Republican Adam Putnam says his state first enacted anti-gouging legislation after people took advantage of the situation when Hurricane Andrew hit.

Representative ADAM PUTNAM (Republican, Florida): People were charging gouging rates for ice and plywood and things like that in the middle of a hurricane. So there's a legal model out there. We want to standardize that model so that states that don't have gouging laws will now.

MARKELS: But like most state anti-gouging laws, Florida statute only applies during a state of emergency, and it defines price-gouging as charging an amount that grossly exceeds the average price in the 30 days before the emergency was declared. Because of that, economists say such laws won't have any affect on gas prices now, when there's no emergency, and when demand is simply outstripping supply. Even in emergencies, they warn that anti-gouging laws often don't do what they're intended to.

Mr. MARK THORNTON (Economist, Libertarian Mises Institute): Anti price-gouging laws really harm the people that they're meant to help.

MARKELS: Mark Thornton is an economist with the Libertarian Mises Institute in Georgia. He points to recent hurricanes in the Gulf Coast, where anti-gouging laws kept many stations from raising their prices.

Mr. THORNTON: If the law wasn't in effect, and gas stations were allowed to raise their prices, they would've raised their prices significantly, and people would've only purchased the gasoline necessary to get to safety, leaving more gas for the people to come behind them.

MARKELS: But Thornton says that's not what happened.

Mr. THORNTON: The people who came later ended up finding gas stations with no gas, and ended up being stranded along the interstate.

MARKELS: With the latest price spike, many people figure gas sellers are simply taking advantage of the situation. Economists like Sam Peltzman, at the University of Chicago, say there's little evidence of collusion or price fixing in the market.

Mr. SAM PELTZMAN (Economist, University of Chicago): If you just drive down a main street, you'd see how hard it would be to do that. Even among the oil companies, there are many, many sellers. It's barking up the wrong tree, I think.

MARKELS: So then why are congressmen so eager to pass anti-gouging legislation?

Mr. PELTZMAN: Pure political grandstanding. It's an election year, and both parties are feeling the heat, and you have to be seen to be doing something.

MARKELS: Of course, if they really wanted to make some political hay, they might try going after some of the other things people feel gouged by, like those pricey lattes at Starbucks, or the $7.00 hot dogs at the baseball stadium. And what about the popcorn at the local movie theater?

Ms. NORA GRAY(ph) (Movie Patron): Six-fifty? Really? Almost as much as a movie for popcorn.

MARKELS: At that price, Nora Gray decided to skip the concession stand altogether when she went to the movies in Washington last week. Not that she wouldn't mind some congressional help the next time she goes.

Ms. GRAY: If they're going to do it for gasoline, they should definitely do it for popcorn.

MARKELS: In Washington, this is Alex Markels, for NPR News.

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