Editorial : The trouble with high gasoline prices may be us
Some Island gasoline retailers may act "oligopolistically" and with "conscious parallelism" — indeed, they admit that they do — to maintain uniformly high and similar prices, but they do not conspire to do so, so it's not price fixing.
On this, judges in two federal courts have now agreed, bringing an end to a lawsuit filed by several Vineyard year-round and seasonal residents, alleging price fixing and price gouging by several gasoline retailers and wholesale distributors.
"Plaintiffs point to a variety of plus factors as evidence of conspiracy," federal Judge Rya Zobel wrote last year as she rejected the plaintiff's arguments, "but most are indicative only of parallel pricing and do not tend to exclude the possibility of independent action. Specifically, a motive to earn large profits, abnormal profits, price changes unrelated to costs, price leadership by one firm, and fixed market shares would all be expected if defendants engaged in conscious parallelism, aligning their prices without an agreement to fix prices..."
Parallel pricing, if done consciously but without collusion, is legal. Parallel pricing by retailers, who plan together to set similar prices and talk about it, is not.
Then, why are prices so high? We reject the notion that the retailers are merely villainous and determined to beggar their Vineyard neighbors. To a significant degree, Island-ness may be the culprit.
"The conditions in the Martha's Vineyard gasoline market are remarkably conducive to the development of parallel pricing, whether through a conspiracy or merely conscious parallelism," Judge Zobel, now upheld by a three-judge federal appeals panel, as we report today, wrote. "The market for gasoline is highly inelastic; gasoline is a necessity, and residents cannot feasibly purchase gasoline off of the Vineyard, so gasoline demand is minimally affected by a change in price. Price coordination is easy, because there are only nine gas stations on the Vineyard and gasoline prices are openly posted. Further, gasoline is a non-durable good, so a consumer who does not buy today will need to buy tomorrow. Therefore, a station owner can advertise a higher price, wait a short time to see if other gas stations follow, and if they do not, the owner can reduce the price with minimal loss to sales."
Prices for gasoline today are substantially higher today than they are on the mainland nearby, and they promise to reach even higher levels. The data used for the purpose of the federal lawsuit was drawn from 60 months between 2003 and 2008. Then Islanders paid a handsome premium, averaging 56 cents for regular gasoline, at four Island fuel retailers. That's compared with the cost of regular gas sold at stations on Cape Cod. Only a portion of premium could be accounted for by the high cost of doing business on the Vineyard.
Indeed, although Vineyard gasoline consumers complain bitterly of high Island gasoline prices, these same drivers have demonstrated no willingness to inconvenience themselves in order to find the lowest on-Island prices. Concerted price action to lower gasoline prices is not the preferred tactic of oppressed Vineyard gasoline consumers. The preferred tactic is to complain.
"I have seen no economic evidence," Michael Quinn, an expert in the employ of the plaintiffs in this legal action, concluded, "suggesting that customers on Martha's Vineyard are responsive to price — i.e., no evidence that gasoline stations on Martha's Vineyard face a high price elasticity of demand. To the extent that plaintiffs are representative of gasoline buyers on Martha's Vineyard, price is not an important factor in consumers' gasoline purchase decisions...."
Expert though he may be, Mr. Quinn is certainly wrong about the importance to Islanders of high prices for life's staples. He may be correct to suggest that Islanders have not been able to organize an effective consumer response.