Gas Prices — The Harder They Come, The Softer They Fall

Sep 1, 2011 4:36pm

 

If you think gas prices seem to shoot up faster than they come down, you are not hallucinating.

Federal Trade Commission economists conclude in a report released today that prices do rise faster than they fall, a phenomenon known as “asymmetric pricing” or “rockets and feathers.”

“The causes of asymmetric pass-through in retail to wholesale price relationships are not fully understood,” FTC staff write in the report. “The explanation currently with the most support is that consumers search for lower cost gasoline more intensely when prices are rising than when they are falling. As a result, gas station owners do not face as much competitive pressure as prices fall and are less compelled to reduce price.”

The report also finds crude oil supply and demand seem to be the main drivers of gasoline price spikes.

The world’s appetite for crude oil has been rising, making it more difficult and more expensive for refineries in the U.S. to get oil. That makes it more costly for consumers at the pump.

 

The report found conflicting views on whether the futures markets play a significant role in high gas prices.

 

There is no doubt, however, that OPEC countries have tried to manipulate oil prices. OPEC holds more than 70 percent of the world’s oil reserves and engages in actions, the FTC staff write, that “would be a criminal price fixing violation of the U.S. antitrust laws if done by private firms.”

 

But OPEC’s ability to control prices has been shrinking as non-member nations produce more of the world’s oil.

To read the FTC’s report, click here. 

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