Wednesday, February 19, 2003

Price Gouging or Replacement Cost Pricing?-This is a stock piece anytime there's a significant price run up in the price of gas; the state AG will want to look into price gouging. Jennifer Granholm rode such 9-11 era investigations into the governor's mansion up in Michigan. Here in Florida, we've got newly elected AG Charlie Crist playing the game. I'd expect better economic savvy from a Republican, but it seems to be too populist an issue to pass up. The basic concept to remember is that businesses will price most goods baced on the replacement cost of the product; thus, they're not pricing the product baced on what they paid for it, but what they'll have to pay to restock the product. When oil prices go up at the wholesale level, retailers will raise prices now, rather than after they buy a batch of the higher-priced product. That will mean that when prices go up, retailers will make some extra profit on the current batch. On the flip side, that will also mean when prices go down, retailers will have to sell off more expensive gas at the new lower price, but state AGs don't get Brownie points for having compassion on retailers when prices go down. If retailers are merely raising prices in responce to changes in wholesale costs, that shouldn't be counted as price gouging. If they were jacking it up highter than what current wholesale costs would call for, then you might have a case. However, the higher prices are system-wide, as the problems in Venzuela, a cold winter and jitters over Iraq have raised the price of gas.

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