Every so often, someone circulates an email campaign to organize a boycott of Exxon/Mobile. The instinct to use the free market forces of supply and demand to modify gas prices is laudable. It is much to be preferred over artificial stimuli such as government intervention, which already is being alluded to by left leaning policy makers. I marvel at their proposal to fight high gasoline prices with a gas tax!?! (Huh? What?) I cannot personally verify whether or not the author of this boycott plan is actually a mathematician. I can, however, deduce that he is hardly an economist. Let's get serious for a second.
Whether you think gas prices are high or low, they are what they are, for the most part because of free market forces. An important element of those forces is competition. Just as Exxon/Mobile represents a sizeable portion of the oil supply chain, it also provides a correspondingly large chunk of competition in the market place, not to mention a correspondingly large slice of the retail delivery process, (i.e. your corner gas stations.) There are a given number of retail outlets for gasoline in the U.S. That number is arrived at in response to market forces. The neat thing about Capitalism is that there are generally no more, and no fewer gas stations in business, than actually needed. If there were too many, they'd close for lack of business; too few and someone would open another one.
If the author of this boycott plan were actually successful in exerting social pressure sufficient to create the corresponding massive shift in retail purchasing, the remaining non-Exxon/Mobile retail outlets would be overwhelmed with business. Faced with long gas lines at these remaining outlets, stores would be forced to stay open longer to meet the increased demand, or raise prices to dilute it. If sustained social pressure were successful, Exxon/Mobile would go out of business. The remaining retail outlets, the Texacos and Chevrons of the world, would increase their market share. With a sizeable portion of their competition eliminated, the door would then be open to raise prices.
Exxon/Mobile operates tankers and pipelines that deliver crude to their refineries that process it. That is to say, they are an important part of the energy infrastructure. Over the last decade, governmental regulation under the guise of environmentalism, has done much to prevent the addition of newer, more efficient, modern refining facilities. Currently, most refining facilities of all petroleum companies are operating at or near maximum capacity. The demand for energy in America is high. And currently, the price is relatively high. So refineries have economic incentive to produce as much as possible. In the author’s dreamland-world where Exxon/Mobile’s refineries are idle due to the boycott, where do you suppose the non-Exxon/Mobile petroleum companies would get the additional inventories they need to keep pace with the displaced demand? If I have to tell you....well...I don't. Do I?
The author of this boycott plan makes several erroneous assumptions.
1.First and foremost is that he presumes current price levels to be a problem in need of solution (presumably by the government). While these prices may be a problem for him, they are not a problem for the market place, otherwise people wouldn't be buying gasoline. Truly, the question is not 'why are gas prices as high as they are?' The question is 'why are gas prices (especially in the U.S.) as low as they are?' The answer probably has something to do with free enterprise. (Check the equivalent price per gallon in any European market if you think our prices are high.)
2.The author assumes that all of the petroleum companies in the world are colluding in order to control oil prices. This is untrue. If someone were able to sell gas cheaper, Wal-Mart would find out about it, pressure the supplier, and corner the market. It's just that simple. (Besides, colluding to control oil prices is OPEC's job.)
3.The author assumes that Exxon/Mobile is an unimportant link in the chain of supply and demand, competition, and other free market forces. (Whoops!)
I doubt whether the author of this boycott plan really believes this crazy scheme will or would work. Maybe he just suffers from 'good 'ol days' syndrome. More likely, he's another one of the endless list of anti-corporate whack-o's who likes to take pot shots at big companies. Or it could be that the coke machine down at the Exxon/Mobile stiffed him once, and he's just lookin' for revenge.
Drive Friendly,
Mike
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