| It's not the local retailer who is making the big profits, so why would cutting into their profits make a damn bit of difference in the price? I still believe the heart of the matter is that gas is by and large a product that people dont care whom they buy it from, so long as it is available. If you add in the condition of price as well, then this seems like a reasonable assumption to me. For most Americans, gas is seen as a parity product (one 87 octane gas is as good as another), so price and availability dictate its sale rather than brand image or unique features.
This results in very little price movement in favor of the consumer since retailers can charge whatever they want so long as the others follow along.
If they make such an agreement to keep prices (as derived from profits) up across the board, then you are correct and this is true as long as the retailers do not raise the profit margin beyond the point where gross profit falls off due to lack of sales volume becoming greater than returns from increased sales profit. By working together in your example, the retailers effect a pseudo-monopoly which eliminates competition. No competition means they control supply and therefore the demand for THE product is the demand for THEIR product. This allows them to set the price at a level which brings them maximum profits by balancing sales volume against sales profit. As this applies to the gas situation though, the retailers in your example are the oil companies and NOT the retail gas stations. The bulk of the money that you spend on gas at the pump goes to the people who make the gas, not the people who sell it directly to you. I'm going to quote you here to refresh your memory:
According to him, the larger more mainstream stations, make as much if not more money off of beer and junkfood and other "inside" items which are marked up drastically more.
Yes the gas stations make money off of the gas they sell, but it's a tiny slice of the pie. Most of that money goes to the people who supply the gas to the stations. So let me be as clear as possible: The individual gas stations are NOT the ones making big profit from gasoline sales.
While there is a baseline price that is dictated by higher levels of the industry all the way up to crude oil producers, there is also a margin that the retailer deems acceptable, ...
Yes, this much is true, but the profit margin that the local gas station makes is a very small percentage of the price you see. Gasoline retail is very different from clothing retail. In clothes, some manufacturer makes items at almost no cost and then sells them to retailers with a nice markup. Then the local retailer adds their own markup which generally exceeds 100%. This is not the case for local gas retailers. The local station does not make $2 for every $4 of gas that you buy. Not even close.
... so I believe peopel can effect this margin and lower prices to an extent and create a bottom up effect to an extent that reduces margins, and in the end prices.
The local gas stations are already being squeezed pretty tightly. They are already sacrificing the profits that they used to make years ago in order to just try and keep their customer base. There already IS a price war between stations, but it is reflected in their profit margins, not their prices. Price competition works on the principle that by selling MORE of an item at a lower price you can make more gross profits. The local retailer wants to sell more, but they have to balance volume with profit-per-unit. If dropping their profit-per-gallon on the gas that they sell was going to allow them to sell enough surplus gas that the decrease in profit-per-gallon was made up for by the profit gained from selling the extra amount of gas, then they would do it. If half of the customers stop buying from an individual station, then that station will have to lower its prices in order to attract more customers and minimize the losses of profit-per-unit by simply selling more units. BUT there is a limit to how far this can go. Once you stop making any significant profit-per-unit, then it doesn't matter how many units you sell--you simply won't make any profit and your business will have to shut down. The oil companies aren't pressured to reduce their prices of the gasoline that they sell to the stations because if one station can't afford to buy it, then another station will buy it. By boycotting only one chain of stations, you aren't affecting the people who really control the price. Until the demand on gasoline goes down as a whole, the demand on the oil companies is buffered by the retailers.
Whle not resulting in much significant change at first, if it becomes a trend, then over a longer term we could see real beneficial results.
If people stop buying gas from one particular local station, then that station has to either: (A) Make it's money in non-gas sales--which will be diminished, because if less people are actually coming to the station then there will be a drop in convenience store sales as well. (B) Reduce the price it sells gas for to a low enough level that will attract enough customers to keep the station in the black. If the stations are already making minimal profit on the gasoline (most of them are) then they might have to start selling it at-cost, just to maintain a customer base and get people inside the convenience store to purchase stuff. Assuming that this works, then they are still selling the same amount of gas and therefore buying the same amount of gas from the oil companies. So all you have done is gotten some people to pay the same prices they have been paying (or more) at other stations while a handful of people (who aren't interested in your boycott) pay less at the Exxon stations, and have cut down the income of the local small business owners who own Exxon stations.
And yes obviously there is no replacement for cutting consumption altogether.
That's exactly it. In regards to affecting price (and as long as supply is controlled), there is simply no replacement for decreasing demand across the board. If people could start making their own gas in their garage, it would be a whole other ballgame though.
"The two seater is being joined in a few weeks by a larger two-plus-two model with a rear seat for munchkins." ~Jim Mateja, Chicago Tribune, in regards to the Z32.
Andrew Janeshek // jnshk@aol.com // 1992 NA 2+2 [Stage 2-ish]
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