Monday, December 05, 2005

Economics talk!

1) The study of Economics as the Study of Theology?

2) I see tons of oil talk on the various blogs, almost exculsively linked to from here. Thanks!

3) Anyway,

4) What about the notion of percentage-based gouging? The refiners and distributors seem to have made windfall profits in response to no business changes except a restriction in supply, and the resulting increase in prices. Since their expenses didn't go down (right?), their revenue must have gone up. We're assuming that there was no overt gouging, so how did it happen? Volume didn't go up, so margin must have gone up. The only conclusion I see is that they charge for their services on a percentage basis, rather than on a per gallon basis. The overhead of refining a gallon of gasoline doesn't change with the price of crude, as far as I can tell. But that's how they are charging, also as far as it seems. That's how they gouge. (He theorizes.)
Example: At some point, crude costs $50 a barrel. I, gasoline manufacturer, know that it costs me $10 to turn that into gasoline. So, I mark it up 25%. I cover my costs and make $2.50 a barrel. Tomorrow, crude goes up to $100 a barrel. But I've set my prices based on a percentage rather than a per-unit dollar amount, so now I'm making $15 a barrel for the same effort. Phase 3, profit.
5) Didn't we learn in California that there doesn't have to be Collusion® and Gouging® for there to be the effects thereof? The timely plant maintenance shutdowns, etc. I wouldn't be surprised if there were dirty tricks policies to promote the NIMBY attitude, so they can say they'd build all the plants in the world, but those darn environmentalists keep fouling it up! Blame them for the high prices (and, cough, convenient high profits)!!

6) (Changing subject): Poor Microsoft. Even though they can (or could) easily compete on a better product basis, AND a better support basis, they still need to push around poor Linux. They'd do well to embrace, or at least tolerate, its existence. They (MS) have the resources to blow away the free software people at their own game and still make a profit, but seem to be refusing. (For example- you want the free OS, you pay for support. You want free support? Pay for the OS. Done.) There is still a healthy software market for people who DON'T want to fuck around with config files just to be able to send a GD email.

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