Price Gouging

Let's go through this AGAIN...

OK, if you’ve read me ranting about this topic (price gouging) before and already understand what I am saying, skip this posting.

If, however, you have disagreed with me in the past, please read me one more time if you will--maybe I can crack this through your thick skull.

Raising prices based on raw costs and market demand is not PRICE GOUGING.

Got that?

No?

Here is the deal on gas pricing specifically and price gouging in general…

Say that my name is Rahsee Patel and I just bought the local convenience store with gas pumps down on the corner near your house. In addition to stocking a lovely assortment of exotic smelling incense and plastic wrapped porno magazines, I also have one 10,000 gallon and two 7,500 gallon gasoline storage tanks buried in the ground under the parking lot out in front of my new retail empire.

After closing on my purchase, I rush to the store from the lawyer’s office and check my gas inventory. My giant wooden dipstick tells me that I currently have on hand 5,000 gallons of regular, 3,000 gallons of mid-octane, and 3,500 gallons of premium gasoline.

My sign out front of the store currently advertises $2.59, $2.79, and $2.99 per gallon, and sales are brisk this afternoon when we return to the store.

With the Labor Day holiday coming on, I place a phone call to two different distributors (my station is an independent) and I am shocked at what I hear. My new COSTS for replacement product exceeds what I am currently selling my gasoline for.

The first thing my brother “Big Bob” Patel does is prepare to go out and change our signs and the pump pricing--after all, we have to be able to afford to replace the gas in our tanks with new product at the higher prices, and our bank account is drained quite low after making the cash purchase of the store and its existing inventory.

I need at least 5,000 gallons of regular at a cost of $2.65/gal, and 3,500 gallons of plus and and 3,000 gallons of premium now costing $2.85/gal and $3.05/gal respectively.

Based on my actual purchase cost for the gasoline plus my 25% overhead and profit, the new costs will be $3.31, $3.48, and $3.71. This means that my new selling price for gas will go up by an average of $0.72 per gallon. We post the new numbers on our sign, and the uproar starts.

PRICE GOUGING SCREAM THE CUSTOMERS!!

A satellite news truck pulls up out front and the reporter asks me to come on camera and explain myself to the American people.

“Look,” I say, “I’m just a small business man and I don’t make the gasoline, I just sell it.”

“But what about all of that gas you already had in your tank that you bought last week for a lower cost?” they ask.

“If I sell my existing inventory at the old prices, I won’t make enough money to be able to fill the tank back up paying the new costs--don’t you see?” “I’ll have to borrow the money else operate with less than a full tank--I’ll risk running out.”

Here's the details. If I sell the existing 11,500 gallon inventory at the old prices, regardless of the initial cost, the store would net $33,785.00. That would be $4,490.00 less that the $38,275.00 cost to purchase equal quantities of new products.

By selling the gas already in the tank at a price based on the new product costs, the store will net $39,750, a whole $1,700 more than needed to replace the existing inventory at the increased costs.

Can you honestly call an extra $1,700 on a nearly $40,000 transaction PRICE GOUGING?

No?

Then how about everybody thinking before they holler next time? I know that the rising prices hurt in the ole' wallet and are a hardship for many people, but the details bear out the fact that everyone in the gas business isn't a thief and does not deserve to be villified the way they are.

The bottom line here is that gasoline sales is a business, not a charity, and you have a choice to pay what the asking price is or stay the heck at home.

It’s just that simple…