Thursday, May 17, 2007

Keep Buying Gas From Exxon

Melba got the below email a while ago. If you've already read it, which you probably have, just skip over it. I changed the color so you'll know what is email and what is me.

GAS WAR - an idea that WILL work This was originally sent by a retired Coca Cola executive. It came from one of his engineer buddies who retired from Halliburton. It ' s worth your consideration.Join the resistance!!!! I hear we are going to hit close to $4.00 a gallon by next summer and it might go higher!! Want gasoline prices to come down? We need to take some intelligent, united action. Phillip Hollsworth offered this good idea. This makes MUCH MORE SENSE than the "don't buy gas on a certain day" campaign that was going around last April or May! The oil companies just laughed at that because they knew we wouldn't continue to "hurt" ourselves by refusing to buy gas. It was more of an inconvenience to us than it was a problem for them. BUT, whoever thought of this idea, has come up with a plan that can really work. Please read on and join wi th us! By now you're probably thinking gasolinepriced at about $1.50 is super cheap. Me too! It is currently $2.79 for regular unleaded in my town. Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a gallon of gas is CHEAP at $1.50 - $1.75, we need to take aggressive action to teach them that BUYERS control the marketplace..... not sellers. With the price of gasoline going up more each day, we consumers need to take action. The only way we are going to see the price of gas come down is if we hit someone in the pocketbook by not purchasing their gas! And, we can do that WITHOUT hurting ourselves. How? Since we all rely on our cars, we can't just stop buying gas. But we CAN have an impact on gas prices if we all act together to force a price war. Here's the idea:For the rest of this year, DON'T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL. If they are not selling anygas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit. But to have an impact, we need to reach literally millions of Exxon and Mobil 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 =3D 300) ... and those 300 send it to at least ten more (300 x 10 =3D 3,000)...and so on, by the time the message reaches the sixth group of people, we will have reached over THREE MILLION consumers. If those three million get excited and pass this on to ten friends each, then 30 million people will have been contacted! If it goes one level further, you guessed it..... THREE >>>>HUNDRED MILLION >>>>PEOPLE!!!Again, all you have to do is send this to 10 people. That's all. (If you don't understand how we can reach 300 million and all you have to do is send this to 10 people.... Well, let's face it, you just aren't a mathematician. But I am, so trust me on this one.) How long would all that take? If each of us sends this e-mail out to ten more people within one day of receipt, all 300 MILLION people could conceivably be contacted within the next 8 days!!!I'll bet you didn't think you and I had that much potential, did you?Acting together we can make a difference. If this makes sense to you, please pass this message on. I suggest that we not buy from EXXON/MOBIL UNTIL THEY LOWER THEIR PRICES TO THE $1.30 RANGE AND KEEP THEM DOWN.

If the fact that this is an email forward does not immediately make you realize it is false, well, listen up... Whatever you do, don't forward stuff like this to others. You just might end up accidentally forwarding it to someone who knows what they are talking about who then sends everyone a witty 'Reply To All' like this (which I wrote and had Melba send out as a Reply To All).

It’s funny to me how the laws of supply and demand hold true in situations like this, yet they seem to frequently be either disregarded or misunderstood. Here’s a quick refresher of Econ 101. The price of a product is always directly correlated with the level of demand – as demand goes up or down, so will the price. Price is also inversely correlated with supply – as supply goes up, price will go down and vice versa.

This email suggests that price will be reduced by reducing demand to one provider of a given product, ExxonMobil. (There is an insinuation that ExxonMobil currently posses a large market share by saying, “they are the two biggest gasoline companies,” however, combined they only have about 15% of the market.) The email also states, “If they [ExxonMobil] reduce their prices, the other companies will have to follow suit.” This is the claim’s major fallacy. Price is only reduced when there is a reduction in the overall demand – the action taken by followers of the email will only create a shift in demand.

US refineries currently produce nearly all of the gasoline consumed in the US with the remainder imported. This ensures that the refineries will always maintain profitability by not overproducing. If the demand for gas shifts away from ExxonMobil to other providers, those providers will not only be forced to raise their prices (increase in demand yields a raise in price), but they will also need to buy gasoline from ExxonMobil so their supply can meet their demand. This latter action will keep ExxonMobil running at its regular demand and therefore not have the need to drop their gas prices as predicted by the email. The largest potential effect (which isn’t actually that large) of the suggested collective action would be reduced profitability to the individual owners of the gasoline stations – most of whom get the bulk of their profits from the goods in the convenience store, not the gasoline. But that’s a totally different issue.

Just for fun, let’s assume that ExxonMobil was forced to drop their prices. The effect would be an increase in demand as their gasoline is the lowest priced, not the predicted boycott continuance. For example, if every gasoline company priced their gas at $3 per gallon except for ExxonMobil who priced theirs around $2.50 per gallon, well, do I need to say where cars would line up to get their gas? And as stated previously, why would ExxonMobil keep the prices low if everyone was shopping at their store? They wouldn’t. They would increase their prices to the match the market level.

The email also neglects other demand factors like location and brand loyalty while presenting an ineffective approximation of the general public’s gasoline price-hunting indifference curve (as most people do not check multiple prices before making a purchase) but I won’t go into any of that here. This is really nothing more than a quintessential illustration of the inherent problems naturally intertwined with a planned economy; replete with moral hazards, proletariat disobedience, and an inability to effectively manage and control individual behavior. I hope this quick lesson in economics and the ‘unseen’ side of the gasoline supply chain has expanded your understanding on the topic.

Nothing like the free market, huh? :)

Even funnier is how people will put more faith into an email forward than the laws of supply and demand. Maybe this isn't very funny -- well, we haven't posted in a while and I had to put something up here. If you don't like it -- blame Jeremy. He was the one who said I should post this.

PS -- our condo sold. We're definitely moving now.