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EXXON/Mobile have Record Earnings from Oil Prices
- Thread starter Chadder007
- Start date
Economics for Dummies?
I say we cap all earnings. Can't have people making too much money, eh comrade?
Mark
I say we cap all earnings. Can't have people making too much money, eh comrade?
Mark
mugs
Lifer
It's high school economics (well at least what Kranky said... what Crono said already happens to an extent). People don't use less gas because they don't want to. Or because they figure it won't make a difference because nobody else will. Or because they're already driving the bare minimum, and the idea of carpooling is absurd to people these days.
Some very confused posts in this thread...... Let me try to clear some of them up.
No, the gas stations are not the ones making the big bucks. In general, gas stations purchase the gas from a few major suppliers and have a very small profit margin. There is sufficient competition which has driven down the margins for gas station owners.
There is nothing wrong with a company making more $$, that's what a free market is supposed to be all about. However, when it comes to oil production and refining, the free market mechanisms that usually drive prices down fail because there isn't any true competition, and demand is very inelastic.
In what other industry do profits go through the roof when the cost of goods sold (for example, the price of raw materials) rises rapidly? None. The only way that is possible is if there is a very inelastic supply curve and a lack of competition. In theory, if there is competition, then the rising price of oil would simply be passed along to the consumer, or absorbed by the company (for example, Exxon). Profits would not increase as the cost of oil went up. Normally, in market with competition, rising costs of raw materials (in this case oil) would eat into profits, not increase them. As an example, take a look at the airline industry.
Clearly, currently profits for the big oil companies are going up roughly in a linnear way along with the price of oil. That means that not only are the companies passing along the increased cost of goods sold, they are increasing their margin at the same time at the expense of the public. Without competition, there is no incentive not to, and since oil is to a large extent a nesessity the consumer can't take action. Consumers can reduce consumption over the long term by conserving and driving more efficient vehicles, but not in the short term. Unless the oil companies can show that profits are rising as a result of efficiency or decreased expenses, one would have to conclude that they are gouging the public.
The federal government has now also started an official inquiry into price gouging by the oil companies.
No, the gas stations are not the ones making the big bucks. In general, gas stations purchase the gas from a few major suppliers and have a very small profit margin. There is sufficient competition which has driven down the margins for gas station owners.
There is nothing wrong with a company making more $$, that's what a free market is supposed to be all about. However, when it comes to oil production and refining, the free market mechanisms that usually drive prices down fail because there isn't any true competition, and demand is very inelastic.
In what other industry do profits go through the roof when the cost of goods sold (for example, the price of raw materials) rises rapidly? None. The only way that is possible is if there is a very inelastic supply curve and a lack of competition. In theory, if there is competition, then the rising price of oil would simply be passed along to the consumer, or absorbed by the company (for example, Exxon). Profits would not increase as the cost of oil went up. Normally, in market with competition, rising costs of raw materials (in this case oil) would eat into profits, not increase them. As an example, take a look at the airline industry.
Clearly, currently profits for the big oil companies are going up roughly in a linnear way along with the price of oil. That means that not only are the companies passing along the increased cost of goods sold, they are increasing their margin at the same time at the expense of the public. Without competition, there is no incentive not to, and since oil is to a large extent a nesessity the consumer can't take action. Consumers can reduce consumption over the long term by conserving and driving more efficient vehicles, but not in the short term. Unless the oil companies can show that profits are rising as a result of efficiency or decreased expenses, one would have to conclude that they are gouging the public.
The federal government has now also started an official inquiry into price gouging by the oil companies.
kranky
Elite Member
I believe the public can reduce consumption in the short term. So far they aren't sufficiently motivated to do so. In my building of 500 people, I've not heard of one person looking to carpool to work. I still see my neighbors making multiple trips out and back home in the same evening. I still know people who just go riding around on Friday and Saturday nights with no destination. I see the same V8 pickup trucks flooring it when the light turns green, only to see them do it again at the next light after I've caught up to them.
Exxon runs on 10% Profit Margin. How is that price gouging?
Shell runs on 7% profit margin....
BP runs on 6% profit margin...
And all you Halliburton haters...their profitability rate is a measly 2.5%!!!
Shell runs on 7% profit margin....
BP runs on 6% profit margin...
And all you Halliburton haters...their profitability rate is a measly 2.5%!!!
There's no doubt that there's a lot of things we can all do to conserve, and the higher the price of gas goes, the more incentive there will be to do so. The reality though is that those things, even if done on a pretty wide scale, would not have a huge impact on the consumption of gasoline, especially not in the short run. Further, that's basically an argument over just how 'elastic' the demand for gas is. Generally, if free market forces are not allowed to work (because there is no competition, and there are few viable alternatives), then steps have to be taken to keep things in balance. I'm not some socialist, I'm not one for a bigger government, or for unneeded regulation. Something has to be done to restore the balance that the free market mechanisms cannot provide in the absence of effective competition.
I have yet to see a good rational explanation for oil companies increased profits in relation to higher oil prices. It appears to be simple gouging of the public but I don't know what other factors might be at play. The federal probe might shed some light on it.
Exxon runs on 10% Profit Margin. How is that price gouging?
Shell runs on 7% profit margin....
BP runs on 6% profit margin...
And all you Halliburton haters...their profitability rate is a measly 2.5%!!!
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