Gouging? Or market forces

It has become somewhat of a yearly tradition in Utah. Sometime during the summer, Utah's gas prices rise to levels above the national average. The governor's office responds either by launching an investigation, or, as happened recently, by announcing it will "monitor and analyze the situation."

Nothing will come of any of this. Then, by the time winter rolls around, Utah's gas prices once again will fall below the national average and politicians will turn their attention elsewhere.

The public, largely ignorant of basic economics, seems to demand some sort of government action to combat forces that defy simple explanation. But the entire exercise is futile.

We don't have precise answers as to why Utah's gas prices have not dropped recently at the same rate as in other states. Generally, businesses act in their own self-interests, tempered by competition and the consumer's willingness to pay. Greed is a factor, as it is in virtually every business and every home, but it is kept in check by market forces.

Two years ago, when the state was going through a similar hand-wringing session, John Hill, executive director of the Utah Petroleum Marketers and Retailers Association, offered what may be the best explanation. Utah has a limited supply of refined petroleum, he said. The state gets most of its oil through pipelines from Wyoming and Canada, and it is refined here. If the state received more refined oil from elsewhere, prices probably would be more stable throughout the year.

In any event, the market forces affecting prices here are complicated and varied. Meanwhile, it doesn't help when people use terms such as "price gouging" to describe what is happening. That was the term the state used in 2006 when it completed a report on that year's price hikes, which peaked at $2.80 for a gallon of regular gasoline, 42 cents higher than the national average. The state declared confidently then that gas retailers were gouging but not breaking any laws.

One wonders why those retailers weren't charging $4 a gallon, as they are today. If they were gouging, why stop at only 42 cents above average?

The truth is "gouging" is a term that refers to prices people charge for essential goods during times of emergency. Even then, some economists argue such a thing is an important market reaction to regulate the supply of goods.

Of course, the state does not react similarly when the prices of other goods rise or when other retailers have profit margins far above what oil companies now are collecting. We understand that gasoline is different in that consumers rely on it daily and it affects the prices of many other things. Retailers in Utah, however, are subject to a variety of market forces, and prices are likely to come down again soon.

Which will calm everyone down until the tradition begins again next summer.

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