gas prices

Why Don’t Gas Prices Drop as Fast as They go Up?

Because they don’t have to, it might be that simple.

BY Rick Bursky
Jun.14,2021 / UPDATED ON JUN.24,2021

I don’t know who first said, “what goes up must come down,” but it certainly wasn’t someone who owned a gas station. And if they did say that, it was probably followed by, “yep, but it’ll come down a lot slower.”

If you’re like most people, you’ve probably wondered why don’t gas prices come down at the same speed they go up. First, let’s acknowledge that it’s true. Yes, gas prices drop much slower than they go up. Back to our question. Why don’t gas stations lower prices at the same speed they raise them? Because they don’t have to. I hate to say it, but it’s pretty simple. If you owned a gas station or oil company, you’d probably behave the same way. There is a basic economic principle at play here — greed.

Stephen Brown, an economist at the University of Nevada, Las Vegas, and senior editor of the academic journal Energy Policy, once said that dubious pump prices “are likely the result of tacit collusion” and that “the sellers are likely taking advantage of consumers.” However, he added, “…a lack of competition is a primary cause,” he said, rather than a deliberate (and illegal) effort by industry players to fleece customers.

Often, stations can make a better margin when prices are trending downward, and they recoup losses and make more money by slowly dropping the prices instead of making an all-at-once approach. They might also have gasoline in their tanks that they likely paid a much higher price for, and so as they slowly sell through it, they drop the price knowing their next delivery will cost them less. 

Of course, the other side of that coin is that when something interrupts their gas supply, they raise the price of the gas they already have because they know that they’re going to make a smaller margin on the next delivery. 

Life isn’t fair. It’s often survival of the richest. The next time you pay more at the pump, remember what you read here, bang your hand on the steering wheel, and get over it. Perhaps it’s time to get serious about public transportation. 

Keywords: gas prices rising gas pricespublic transportation.gas station economics Energy Policy
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