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For a good morning laugh, I was reading the morning paper and in the business summary section there was a tease of an article that would finally explain why gas prices rise quickly but are slower to go down. This looked like a must read. THE MYSTERY would finally be explained by known economists.
Here was an excerpt from the article.
The mystery is solved. It's all about profit.
I NEEDED AN ARTICLE BY EXPERTS TO UNRAVEL THIS COMPLEX MYSTERY.
Here was an excerpt from the article.
GULF COAST CRISIS
Gasoline rides `rockets and feathers'
You're not imagining things: Prices at the pump are slow to fall
By Robert Manor, Tribune staff reporter. Bloomberg News contributed to this report
Published September 8, 2005
Does it seem that gasoline prices rise just as quickly as petroleum prices, but fall much more slowly when oil prices go down?
The answer is yes, and economists who have studied the issue can explain why.
Lynne Kiesling, senior lecturer of economics at Northwestern University, said the phenomenon of quickly rising but slowly falling gasoline prices at the pump is known as "rockets and feathers." The price rises like a rocket, but falls like a feather.
"We all need to remember that the primary role of prices is to transmit information about scarcity," Kiesling said.
Service station operators, particularly those owned by major oil companies, have nearly instant knowledge about the fluctuating price of wholesale gasoline and are able to raise prices almost in real time.
Kiesling said there is a natural desire not to lower prices too quickly--you make more money that way.
"Profit maximization is the motive of every individual in life," she said. "It's part of human nature."
Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas, has studied retail gasoline pricing.
"Gas prices do tend to rise more quickly when oil prices are rising than they fall when oil prices are falling," Brown said.
He said that while prices can shoot up rapidly, it on average takes eight weeks for the decline in price to equal the rise.
Retail gasoline prices rise with wholesale prices more quickly now than in the past.
"It is almost simultaneous," Brown said. "The market has sped up."
Gasoline rides `rockets and feathers'
You're not imagining things: Prices at the pump are slow to fall
By Robert Manor, Tribune staff reporter. Bloomberg News contributed to this report
Published September 8, 2005
Does it seem that gasoline prices rise just as quickly as petroleum prices, but fall much more slowly when oil prices go down?
The answer is yes, and economists who have studied the issue can explain why.
Lynne Kiesling, senior lecturer of economics at Northwestern University, said the phenomenon of quickly rising but slowly falling gasoline prices at the pump is known as "rockets and feathers." The price rises like a rocket, but falls like a feather.
"We all need to remember that the primary role of prices is to transmit information about scarcity," Kiesling said.
Service station operators, particularly those owned by major oil companies, have nearly instant knowledge about the fluctuating price of wholesale gasoline and are able to raise prices almost in real time.
Kiesling said there is a natural desire not to lower prices too quickly--you make more money that way.
"Profit maximization is the motive of every individual in life," she said. "It's part of human nature."
Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas, has studied retail gasoline pricing.
"Gas prices do tend to rise more quickly when oil prices are rising than they fall when oil prices are falling," Brown said.
He said that while prices can shoot up rapidly, it on average takes eight weeks for the decline in price to equal the rise.
Retail gasoline prices rise with wholesale prices more quickly now than in the past.
"It is almost simultaneous," Brown said. "The market has sped up."
I NEEDED AN ARTICLE BY EXPERTS TO UNRAVEL THIS COMPLEX MYSTERY.
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