Pain at the Pump: Some economists argue price hikes help manage hoarding

Updated: May. 13, 2021 at 5:42 PM EDT
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RICHMOND, Va. (WWBT) - The recent pain at the pump is real, but should there be more pain to stop people from hoarding gasoline? Some economists argue big price hikes make sense in times like this.

The shutdown of the Colonial Pipeline last week caused a surge in gas prices. In some cases, the increase was extreme, such as a BP gas station that posted a price of $6.99 per gallon. The BP later claimed that no customer was charged that price.

But aside from moral issues, could some price hikes help alleviate a run on the pumps? University of Richmond Finance Professor Tom Arnold says it may.

“[Businesses will] set their prices and they’ll say ‘I’ve got enough business: keep the price where it is. I don’t have enough business: lower the price. I’ve got too much business: raise the price’. It is a mechanism of managing the consumer,” he said.

In some cases, exorbitant prices might help from over-selling, to let businesses conserve what product they have left.

According to the Virginia Department of Agriculture and Consumer Services, as of Thursday morning, they received fourteen price gouging complaints from all around the commonwealth, with two from Richmond.

For now, customers seem to be willing to pay premium prices at the pump, perhaps even the more outrageous prices, but Arnold has a warning for gas stations.

“Consumers do have a long memory. If you go and price gouge, and you’re dependent on a regular consumer base, that regular consumer base all of a sudden isn’t going to be coming back to your particular gas station or store.”

Arnold adds that even when everything is fully operational with the Colonial Pipeline, he doesn’t expect gas prices to immediately shoot back down to their pre-disruption levels.

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