There has been much talk in the blogosphere lately about boycotting gas companies, as a strategy for fighting high gas prices. Others have intelligently pointed out that delaying an inevitable gas purchase by a couple of days will do nothing to reduce overall demand, and therefore will not help to reduce prices. I have previously written that in my opinion, if anything, gas prices are too low...
Regardless of your position on the issue, I thought you might be interested to know where your gas money goes after you fork it over at the pump. On the way home last night I heard an intreresting news story on NPR that provided exactly that information. Briefly, the money is split as follows:
50% is the cost of crude oil
28% is the refining cost
14% pays for taxes
8% pays for distribution and marketing
If you are worried about your local gas station owner ripping you off and making a killing, you probably won't continue to think that way after you read that story. Turns out that your local gas station makes a rasor thin margin on the gas it sells and relies heavily on the sale of other items for its main source of profit.
Price gauging, if it exists, and I don't believe that it does, can only exist in the refining portion of the value chain. The retail gas business is highly price competitive. I mean, can you think of one other business that advertises its prices in foot high letters that you can read as you are driving down the freeway at 65 miles an hour? With such easily available information price competition is virtually inevitable.
If you have concerns about the high cost of gasoline, and want to place blame for that fact, look no further than the immutable law of supply and demand. When demand exceeds available supply the price rises until supply and demand come back into balance.
Of course, populist politicians on Capitol Hill and elsewhere don't care about market economics or about the truth. It is always easier to play to the masses and start pointless investigations about price gauging. If you think about it, it is pretty surprising in a country that prides itself on its capitalist system.