Tuesday, May 29, 2007

Gasoline price and market

I remember gasoline price in Michigan was below $1 in Summer 1998. Today, it's closing $4.

Commenting Beni's question on how to reduce gasoline price, I argued that the demand must be reduced and let market sets the price. It's all in the customers' hands, and government must facilitate this by providing education and means to promote oil usage.

I was assuming that the oil market is perfect and free. Now, having thought about it again, I think I'm wrong.

(Big) Oil companies today are actually fewer than they were in the past. Exxon and Mobil are now ExxonMobil. And then Chevron, Texaco and Unocal. Conoco and Phillips Petroleum. And so on. I'm not sure about others like Roman Abramovich's Sibneft, Medco, etc. The point is, the big players are not many. Thus the market is not really perfect.

Even worse, I forgot about OPEC. The number one cartel that controls most of oil production and price. It has become the cartel example in any game theory readings.

It seems that we can't really let the market sets the price. So?

Like Beni brought up -- go to the street and shout, or write petition. Or blame the Bush administration.