Quote:
Originally Posted by Shazam
The thing I've always wondered is just why gas companies always need to make a profit on gas. In most businesses, a company will absorb price increases for quite a while before resorting to raising prices. Oil companies seem to have carte blanche in this respect.
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Because it is a highly competitive properly functioning market. There's not much room for product differentiation in gasoline, it's a homogeneous product. Gasoline companies first need to cover their costs (as responsible bottom-line companies), then they need to charge a price that returns them the most value. Because the gasoline retailing is so competitive the retailers aren't able to charge a price much above their costs. They can try but then the guy across the street will undercut and vice versa.