Editorial : High fuel prices derive from small, isolated, and complacent market
Published: March 11, 2010
It doesn't take a long, unpronounceable, nearly incomprehensible word like "oligopolistically" to tell us what we already knew. But, federal Judge Rya W. Zobel's January 6 decision makes it clear.
Gasoline prices here are high - high almost in lockstep across the Island's nine retailers - because of the cost of transporting wholesale quantities of fuel here, of course, but more significantly because of the isolated and inelastic nature of our market.
Food, clothing, housing, trinkets - higher costs of business operation (including especially property costs) and a smaller market over which to spread these costs mean we pay more.
And, we are mostly complacent about it.
Judge Zobel's decision, allowing the motions of defendant fuel purveyors for summary judgment ending a 2007 lawsuit by several year-round and seasonal resident plaintiffs, added another, somewhat more comforting bit of news. Our gasoline retailers may charge high prices, but they don't conspire to do so. They practice parallel, but not collusive, pricing.
"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," the judge 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."
And, Judge Zobel cites another federal holding, which defines the objectives of the non-colluding businesses: "Tacit collusion, sometimes called oligopolistic price coordination or conscious parallelism, describes the process, not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their prices at a profit-maximizing, supracompetitive level by recognizing their shared economic interests and their interdependence with respect to price and output decisions."
So, are we the victims of gouging, price-fixing neighbors who happen to retail gasoline. We are not.
Do we suffer from the exceptionally high cost of being in business on Martha's Vineyard, whether you're selling gasoline or pantyhose? And, do we suffer from our own complacent, distracted, and indulged nature? Yes, to both questions.
To the extent that we could act in concert to wage war on high prices, well, we're too busy, too careless of the impact on our own budgets, too pleased with the appreciation of our real estate holdings, too satisfied with the precious sense of the community in which we live. And, we don't bother.
