Posted by: nickgerlich | September 4, 2007

Highway Robbery

Gas prices continue to be a bone of contention across the US as the summer driving season draws to a close, but probably no more than right here in the Amarillo area. One would think that in the oil-rich state of Texas, gas would be cheaper here. But that’s only true if you live anywhere south of Amarillo

high gas pricesGas prices vary by as much as 32 cents right now between Amarillo and Lubbock ($2.999 in Amarillo at present, and $2.679 witnessed in Lubbock this weekend). Retailers, wholesalers, and rack jobbers are all busy pointing fingers at one another, while consumers are yelling and screaming at anyone within earshot.

Sunday’s Amarillo Globe-News carried a front page investigative report on why Amarilloans (and everyone else in the northern reaches of the Panhandle) are experiencing such high prices. The authors went into great detail, and left few stones unturned as they went to both retailers and wholesalers to get their stories.

Here is the essence of what the reporters found: There are only two refineries serving the Amarillo market, while four serve Lubbock. In economic terms, Amarillo is the victim of a duopoly, leaving little or no competitive pressure among the two refiners to lower prices.

But the Amarillo retail scene is very different from what Lubbock has. There are 144 gas retailers in Amarillo for a population of 185,000 people (one for every 1285 persons). In Lubbock there are 257 gas retailers serving 212,000 people (one for every 825 persons). Thus, there is more competition at the retail level, which Amarillo retailer Greg Mitchell (President of Toot-n-Totum) says explains a lot. Mitchell owns a full 44% of all Amarillo gas retailers.

I have a hard time buying this argument, though. In Canyon, which is served by the same two refineries as is Amarillo, there are 8 gas retailers for a population of 13,500 (thus, one station for every 1687 people). This is a much higher ratio than is found in Amarillo, yet gas is 24 cents cheaper here.

Hmmm. Supply and demand, eh? No, this has nothing to do with supply, and everything to do with the suppliers.

While I agree that there is enormous demand for gas in Amarillo and America in general, it is lame of Amarillo retailers to simply pass the buck and blame their wholesalers. The problem is that, in the short run, it is very hard for people to change their ways for a product that exhibits a very inelastic demand curve.

I am blessed with a home only six miles from the university, along with the equipment and motivation that causes me to ride my bike to work nearly every day of the year. I have saved thousands of miles (and dollars) the last 15 years in doing so.

But if you live 25 miles from work, it’s going to take drastic steps to ease the pain of high gas prices. It may involve relocating, finding a different job, learning how to use alternative transportation, or…shudder…accepting the idea of carpooling.

In the mean time, though, let’s be honest about the price differential between Amarillo and Lubbock. The refiners are certainly not the only ones to blame. And that’s something to toot about.

Dr “I’m Not Buying It” Gerlich

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