Michael Giberson

Earlier this week the International Energy Agency released their annual World Energy Outlook, and new is a forecast that the United States would surpass Russian and Saudi Arabia to once-again become the world’s largest oil producer, sometime around 2020. The news set off a wave of happy press, i.e. the Wall Street Journal,  more WSJ, Fox Business, Oil and Gas Journal, Reuters, and this odd warning from OPEC that said the report could lead to higher prices. Mark Mills offers a slightly tempered view of the IEA report at Forbes. 

Many of the news reports, if you get beyond the headline and first few paragraphs, do provide a bit of context. The projection depends on a host of factors, not the least of which is the price of oil over the next few years. If oil prices drop much below $60 bbl., the U.S. oil boom will slow much more quickly than Saudi or Russian output. U.S. regulatory changes, the pace of pipeline construction, and numerous other factors will also affect how quickly U.S. production can grow.

More generally, such long term forecasting exercises are regularly wrong. Indeed, the news here is exactly the change in the forecast, i.e., the IEA view that their earlier forecasts were wrong. The obvious question is “why we should believe the new view?” Of course changing views when the facts change is a most reasonable thing to do, but we ought not believe that the facts can’t change again.

I recommend we all go read Vaclav Smil on the “Perils of Long-Range Energy Forecasting” (Technological Forecasting and Social Change, 65:3, 2000).

Michael Giberson

Edward McAllister and David Sheppard, with Reuters, have a great story on the connection between disaster preparedness and the nature of retailer ownership.

They report that corporately-owned retailers, such as convenience-store chain WaWa and vertically-integrated gasoline refiner/retailer Hess, drew on corporate resources in advance of the storm to be ready to return stores to service quickly. Meanwhile, most of the big gasoline brands in the area–Exxon, BP, and Shell, for example–are small franchise operations lacking deep pockets, geographical scope, and logistical sophistication. Perhaps unsurprisingly, it looks like WaWas and Hess and other large corporate retailers were able to help most of their stores to get back in business and keep them supplied. The smaller franchise operations, on the other hand, had more trouble.

Also probably not too surprising, none of the seven gasoline retailers charged with price gouging in New Jersey on Friday were large corporately-owned stores. (The brands of the stations charged: Lukoil (2), Gulf, Delta, Exxon, BP, and Sunoco.)

As I’ve noted in the past on the topic of industrial organization and price gouging, large geographically-diversified companies are much better positioned to respond to disasters. A company with distribution centers across the region already employing constant-contact computer-coordinated restocking technologies are well position to re-organize shipping patters in the wake (or even in advance of) damaging storms and natural disaster. If nothing else, companies with national reputations can enjoy much broader payback from positive public relations stories than can a two- or three-station chain of gasoline stations.

Of course, one implication of these differences is that anti-price gouging laws will fall heaviest on very small retailers. Surely not the intended result, but nonetheless.

ALSO NOTE: WSJ Q&A on the localized gasoline crises.

Micheal Giberson

I’m fascinated by this story by Karin Price Mueller, a columnist for The Star-Ledger, about post-Sandy price gouging. Here is the shortened version of the main episode:

But after more than 48 hours without electricity …, my three children and I wanted a change of scenery. We went across town to a friend’s house for a few hours.

Driving home, we saw lights in a local pizzeria.

“Open,” the light in the window beckoned.

Growing a little bored with my culinary creations on the propane-powered grill, we were eager for a change.

I asked the cashier what they were selling.

Generator-powered large pies or thin-crust versions, no toppings. $15 each.

I ordered one, and we waited with another 20 customers, basking in normalcy, warming up from the cold, savoring the delicious smells wafting from the ovens.

When it was ready, I paid cash and we ate.

And it was delicious. Nothing left but crumbs and a grease smudge or two.

Word must have gotten around, because dozens more customers came, bought pizza, and left in the time we were there.

We returned home, bellies full. Satisfied.

So far, nothing out of the ordinary, but the columnist spent the next day writing a story about post-disaster scams and price gouging. Then it hit her–maybe she paid too much for that pizza the night before.

She dug up a take-out menu from the pizza place and determined the normal cost of the pizza she bought was $11.95, and $15 was a lot more than just 10 percent higher than $11.95.  She wrote, “in retrospect, I wondered if I was a victim of classic price gouging at the pizza joint.”

She returned to the pizza place, explained her price gouging issue to customers to get their reactions and spoke with the merchant. The consumers were mostly satisfied to get what they could at the price offered. The merchant said his usual suppliers weren’t available so he sought out additional sources, and the new sources were more expensive. He also said he’s giving by-the-slice customers a bigger slice–one-sixth instead of one-eighth–which more than makes up for a price which is more than 10 percent higher.

What fascinates me here is that usually consumer’s reaction of “I’ve been gouged” is an immediate and emotional one. Here the consumer’s experience was one of complete customer satisfaction until, sometime the next day she consults an old take-out menu and discovers the price she was happy paying the day before was actually higher than the price the pizzeria charged prior to the storm. Only then does she think that she might have been gouged.

I wonder whether she filled a formal consumer complaint. After all, she wrote, “Pizza isn’t the most important issue out there, but the law is the law.”

RELATED: The same columnist also wrote, “After Sandy, a debate about what actually constitutes price gouging.” The article contrasts the New Jersey law on price gouging with the views of critics, and quotes College of New Jersey philosopher James Stacey Taylor in defense of allowing merchants to raise prices freely. Next we have views from the NJ Attorney General and a former head of the NJ Division of Consumer Affairs (Notable quote: “there are times when the rules of commerce don’t apply and the rules of humanity take over.”). Taylor recently had an op-ed defending price gouging published at The Star-Ledger.

Michael Giberson

Click image to see NJ AG press release and larger versions of the graphics above.

Something new in the realm of price gouging law enforcement: speedy action.

Frequently states begin investigations of consumer complaints only after the emergency is over, conclude investigations months later, and then begin negotiating some sort of settlement with accused stations. You may recall that New Jersey only finally reached a conclusion in its single post-Hurricane Irene price gouging case over a year after the storm struck. The state only initiated the complaint against the gasoline station in mid-December of last year, about three months after the storm.

So Friday’s announcement of eight price gouging complaints by the New Jersey Office of the Attorney General was something of a surprise.

The press release includes links to all eight complaints for the interested reader, each including details on the alleged violations. Apparently as early as November 1 investigators for the state were visiting retail gasoline stations in response to consumer complaints. These eight complaints–seven gasoline retailers and a hotel–represent among them a bit less than 200 of the approximately 2000 complaints that the state has received.

Michael Giberson

At Fiscal Times, economist Mark Thoma discusses price gouging and fairness and capitalism. I hoped Thoma had provided the thoughtful defense of price gouging restrictions that John Carney was looking for. Thoma didn’t really–he had a weightier topic in mind and price gouging was just a lever he used to pr