Working Wounded Blog: Gauging Price Gouging

News Flash: ExxonMobil has the largest quarterly profit in U.S. business history -- Nearly $10 billion!

Despite the headlines of all the turmoil facing the oil industry -- damage to refineries caused by hurricanes, continued instability in the Middle East, and trying to keep track of all of the extra cash they'll be receiving courtesy of the recent energy bill -- the entire industry is overflowing in black ink.

One question that I'm sure NO ONE is asking: "Where do these huge profits come from?" Of course no one needs to ask because anyone who has visited a gas station clearly knows the answer: your wallet. Or as Bill Maher said he was asked during a recent visit to a gas station, "Premium, unleaded or bend over?"

To be fair, I've heard a few people gush in the media in support of ExxonMobil's massive profits. They said things like, "Profits are how the game is played." "Oil companies pump their profits into improving their business." And "Why should an oil company be any different than any other company in seeking a profit?"

I would argue that oil companies ARE different from other companies. The main difference is in pricing -- mainly because they have us over a barrel (pun intended). You can build a better mousetrap, automobile or sandwich and compete in today's marketplace. Starting up a new oil company today? As the movie title suggests, "Good Night and Good Luck."

With barriers to entry preventing new entrants, how competitive is the industry itself? Not very. If you don't believe me, try to find an oil company that hasn't recently merged. It's worse than the hyphenated family names of the 80's and 1990's. ExxonMobil, Royal Dutch Shell, Chevron Texaco, etc. Compete with a future merger partner? Are you crazy?

I'm also struck by how the pricing of gas maximizes the dramatic price increases. The price at the pump is set by the current price of gas. This means that when the gas arrives at the gas station it has one price. But when it's pumped into our cars it usually costs much more. I've never seen the equivalent of this at a grocery store, bookstore or any other retail business.

I could live with this if the prices fell as dramatically as they seem to rise. But that never seems to be the case.

I love the free market. I'm just not sure that the stewards of the gas industry have been responsible members of it. Bigger government scares me, but I'm not sure that anything is as frightening as gas prices surging toward $4 a gallon and the havoc it will create on what remains of our tattered economy.

That said, I'm not a fan of low gas prices. I think prices should be high to discourage people from using it. But rather than siphoning off some of the price at the pump to foster energy independence, it seems that the increased profits go to executives' and shareholders' pockets. Don't believe me? Then when was the last time the industry built a new refinery? Can't remember when? Neither can they.

Tax breaks and record profits in the same quarter? It seems every month is Christmas when you are in the oil industry. I just wonder if there are a few other Scrooges out there who think it's time that this renegade industry is held accountable.

Quote of the Week

"It's not what you don't know that hurts you, it's what you think that just ain't so." -- Satchel Paige

Weekly Book Excerpt

From "You Could Be Fired for Reading This Book: Protect Your Employment Rights" by Glenn Solomon (Berrett-Koehler, 2004):

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