Laws Against Price Gouging

[Flubber]

I'm perusing 2005 now

Valero is the largest north american refiner and in 2005 set records for pretty much every area of financial performance.

Their numbers look impressive . . . but they don't do squat for the case for new capacity

[Flubber]

Why do I just know that kid is preusing the valero annual reports to try to find ANYTHING that supports him. If he doesn't find it, he will shift focus away from Valero-- which was HIS poster child for refining profitability and a sample why new caapacity is so inevitable

[Ned]

Originally posted by Kidicious

High returns are incentive to invest. You can have high returns and price controls, and therefore price controls and increased supply are not mutually exclusive.

BAM

Theoretically

In actual fact, there is very little investment in any area regulated by price. Just one example, there was massive investment in railroads in the United States until the Interstate Commerce Commission was created and imposed price controls. Investment capital always seeks the highest return.

[Kidlicious]

Originally posted by Flubber
Why do I just know that kid is preusing the valero annual reports to try to find ANYTHING that supports him. If he doesn't find it, he will shift focus away from Valero-- which was HIS poster child for refining profitability and a sample why new caapacity is so inevitable

I don't find your argument compelling. As you say Valero only has 12 percent of the market. I just used them as an example. The rest of the industry is also quite profitable.

[Kidlicious]

Originally posted by Ned


Theoretically

In actual fact, there is very little investment in any area regulated by price. Just one example, there was massive investment in railroads in the United States until the Interstate Commerce Commission was created and imposed price controls. Investment capital always seeks the highest return.

You don't agree with price controls on railroads? That's ridiculous. You can't have competition in that industry and low prices are extremely important to the economy. More to the point, massive investment in railroads aren't needed today. It isn't a growth industry. Got any other examples?

[Flubber]

Originally posted by Kidicious


I don't find your argument compelling. As you say Valero only has 12 percent of the market. I just used them as an example. The rest of the industry is also quite profitable.

-- I don't believe you for a second-- you picked them so tou could toss out some high profit numbers-- but they are not typical of the industry --- they are only the largest North American refiner and the most profitable--

Oh and they had 12 percent of the market BEFORE they acquired 4 more refineries. So they would now be in the 15-20% range and if you think that the returns of a company that has a sixth of the market do NOT greatly influence the industry averages you like so much . . . well remedial math is that way

They bring up the industry averages for returns BECAUSE they acquire old assets cheaply so the revenues as a percentage of the book value of those assets is quite high-- so it is and looks like a great return.

The problem is that NO ONE could replicate these returns building new capacity. Valero has a book value of 9 billion on assets that would cost 43 billion to build-- Their revenues look great against a 9 billion test -- Run those same revenues against a 43 billion investment

YOU picked Valero as an example of the high returns and why that would lead to building new capacity and in fact an OVERBUILDING of new capacity. But as usual your analysis was non-existent. Any examination of Valero shows that there success and numbers are almost COMPLETELY IRRELEVANT to the case for new capacity



Sorry if YOU don't find it compelling but I find Valero a compelling example of how a company can make a lot of money by specializing in an area where a lot of other companies simply do not want to be

[Ell_man]

Kid said,

Here's my view. In reality firms can't predict the future price so they really can't make a decision. The tendency is for a glut to develope if prices get too high, because firms expand production too much. This causes prices to fall below equilibrium. The refining industry is a good example of this. So some control over prices seems appropriate and would appease many people.

If firms can't predict future prices well enough how does giving price setting ability to a single council or group of people work better? Just because you think there is an instance where markets produce crappy results, you still have to weigh the crappy market outcome with a potentially crappy government outcome.

[Kidlicious]

Originally posted by Flubber
The problem is that NO ONE could replicate these returns building new capacity. Valero has a book value of 9 billion on assets that would cost 43 billion to build-- Their revenues look great against a 9 billion test -- Run those same revenues against a 43 billion investment

You haven't established that. You only pointed that Valero is getting astronomical returns on that one investments. That in NO WAY has anything to do with the usual situation. It has NOTHING to do with it.

[Kidlicious]

Originally posted by Ell_man
Kid said,

Here's my view. In reality firms can't predict the future price so they really can't make a decision. The tendency is for a glut to develope if prices get too high, because firms expand production too much. This causes prices to fall below equilibrium. The refining industry is a good example of this. So some control over prices seems appropriate and would appease many people.

If firms can't predict future prices well enough how does giving price setting ability to a single council or group of people work better? Just because you think there is an instance where markets produce crappy results, you still have to weigh the crappy market outcome with a potentially crappy government outcome.

This misses the point, which is that the firms will make better decisions under a controlled price. It's still the firms making the decisions.

[Ned]

Originally posted by Kidicious


You don't agree with price controls on railroads? That's ridiculous. You can't have competition in that industry and low prices are extremely important to the economy. More to the point, massive investment in railroads aren't needed today. It isn't a growth industry. Got any other examples?

Kid, the myopia in your thinking is heartrending.

[Kidlicious]

Originally posted by Ned
Kid, the myopia in your thinking is heartrending.

Well, fortunately railroad prices will remain controlled, despite the devistating affect that you think they have on our economy.

[Ned]

Kid, can you imagine, just for a moment, if our RR system were as robust as Japan's?

[Kidlicious]

Originally posted by Ned
Kid, can you imagine, just for a moment, if our RR system were as robust as Japan's?

And allowing railroads to charge as much as they can is going to make that happen how?

[Ned]

Do I really have to lay it out for you?

[Kidlicious]

Originally posted by Ned
Do I really have to lay it out for you?

Well so far your argument is about as compeling as Flubbers, but do what you will.