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Blog of Adam Daifallah -- author, journalist, law student. Lover of politics, writing, golf, curling, fitness, fashion, bacon and maple products -- not necessarily (but probably) in that order. Partisan of the Anglosphere. Contact me via email at adam@daifallah.com. This summer I am joined by Keir Wilmut and Omar Soliman.
Monday, July 30, 2007
Fun with Economics
Have you been forwarded this email yet?
FW: - GAS PRICES - CONSUMERS NEED TO CHANGE THE DEMAND/SUPPLY IN THE MARKET - READ ON AND DO YOUR PART
I don't usually go for these emails, but this one may have impact on our pockets Gas - Read this if you aren't interested in paying $1.30 - $1.50 / liter this summer. This idea may actually work.
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Here's the idea: Starting June 1 of 2007 DON'T purchase ANY gasoline from the biggest Company in Canada. Petro Canada! If they are not selling any gas, they will be very quickly inclined to reduce their prices If they. reduce their prices, the other companies will have to follow suit.
Think about this. Petro Canada has 1500 retail locations and the entire country consumes 68 million gallons a day. Yes per day. And Petro Canada is Canada 's largest gasoline retailer, then doesn't it make sense that the consumer can bring this giant to its knees and force them to lower their prices. But to have an impact, we need to reach literally millions of Petro Canada gas buyers. It's really simple to do!
Now, don't wimp out at this point.... keep reading and I'll explain how simple it is to reach millions of people. I am sending this note to 30 people. If each of us sends it to at least ten more (30 x 10 = 300) ... and those 300 send it to at least ten more [etc etc etc]
If this makes sense to you, please pass this message on. I suggest that we not buy from Petro Canada UNTIL THEY LOWER THEIR PRICES TO A REASONABLE PRICE AND KEEP THEM DOWN.
Sounds like it has a shot, doesn’t it? Of course, the most obvious flaw is that, of the 15 million or so people in Canada, you'd never reach enough of them to make a difference. But – to run the analysis – what if everyone in Canada decided to participate?
Let's say gas is $1 / litre everywhere. All of a sudden, everyone stops buying gas at Petro Canada. PC decides to drop their gas prices to $0.99 to attract customers.
One of two things would happen:
- People say, "cheaper gas at PC! Hooray!" and go fill up at PC. PC raises prices back up to $1. This is what would happen.
- But let's say people decide to Stick to Their Principles, and still refuse to buy gas at PC. Well - if that were the case, why would any of the other stations lower their prices? If you run a gas station across the street from a PC, and they are charging $0.99 and you are charging $1, and for some weird reason there is a line up at your pumps and no one at the PC pumps, would you lower your prices? Or, would you continue to charge $1?
The flaw in the plan is that boycotting a company prevents the normal price-matching effect from happening. Company A doesn't reduce their prices just because Company B does so; Company A will only follow the price reduction if more people start buying from Company B and Company A is suffering as a result. The boycott plan removes the "harm" to Company A of having higher prices, so Company A has no incentive to follow.
Perversely, if this plan was ever fully implemented (which it couldn't be), prices may actually rise at the other stations.
Gas prices are largely determined by supply and demand. Shocks to the system, like natural disasters, shift the supply curve. If people stopped shopping at PC, it would be like those stations were no longer selling gas. This would reduce the overall supply of gas, shifting the supply curve, rising prices.
Think of it this way - all the customers who usually go to PC would have to go elsewhere. This would lead to line ups at those other stations, and those stations would start run out of gas on some days. What do you do if you run a gas station, have big lines at your pumps, and on some days run out of gas? Yup – you increase your prices.
Silly season, indeed.
# posted by Keir Wilmut : 10:24 AM
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