Oh, those gougers

Tough Bunnies By Richard Morin Sunday, October 23, 2005

Notice how gas prices shot up virtually overnight after Hurricane Katrina -- but are falling much more slowly now?

We have only ourselves to blame, says an Ohio State University economist who studied how people shop for gasoline. Matthew Lewis found that the typical person hunts for the lowest possible prices when costs are rising -- but gets lazy and doesn't shop around when prices start to come down. As a consequence, gas station owners and other businesses have less incentive to lower prices when their wholesale costs drops.

For the study, Lewis used data on prices charged at about 420 service stations in the San Diego area from January 2000 to December 2001. The data were collected by the San Diego-based Utility Consumers' Action Network, which describes itself as a consumer watchdog group. Data on wholesale gas prices paid by the stations were obtained from the Energy Department, he writes in a working paper available on his Web site.

Ironically, consumer buying patterns put more money in the pockets of gas station owners when prices are falling than when they are rising. Lewis found that profit margins were highest when the wholesale price of gas was dropping and consumers stopped bargain-hunting. That eases the pressure on station owners, which in turn allows them to keep prices high, thereby increasing their profit margins.