R.i.p.

[Uncle_Vanya]

According to Ford and GM, american sales have dropped drammatically. SVU's are still selling big in Europe, because the Euro is very strong and increasing gas prices don't look that bad over here (about 40% less).

Gas prices are already high in Europe though, compared to US.

 

[Emperor Pan I]

Shame I only started driving when the prices were so outrageously high.

SUVs won't die when you realize how many people find great use for them. One perfect example is my cousin's buisness hinges on his large vehicles ability to haul **** around.

 

[Tipsy]

But isn't driving the prices up a profitable venture for them?

No. There are two possible scenarios. First, if the cost of production is rising and they raise prices to compensate. Second, if a firm raises their price arbitrarily they will be undercut and/or replaced by compliments.

That's the abstract, here's the real world application. I'll use Exxon as an example and the supposed 'price gouging'. Their accounting profit margin per dollar of oil sold is 10% meaning they make 10 cents off every dollar spent on gas. That has remain fairly constant (as in only changing in the decimal places). Looking at the accounting profit margin of most businesses 10% is actually relatively low.

Second, prices aren't set by the firm, they are set by the market. If a firm tries to set the prices above zero economic profit (separate from accounting profit) they will be driven out of business. Likewise, if they set their price below zero economic profit they will go bankrupt. The market price is set by the consumer in demand (in how it relates to supply).

If the energy market was actually a free market in the United States, this is where the buck would stop. However, it isn't and the blame goes to, as with many problems, government intervention in the economy. All you have to do is look at the history of government actions in response to special interest groups. Some kind of investment becomes profitable and government stops it. This has been the case with large scale nuclear power and surprisingly enough, if you go back 20 years, wind energy (because environmentalists felt is looked ugly and thus destroyed the landscape).

Oil firms aren't gouging us; they are hostage to the demands of consumers, the restrictions of a limited supply of oil, and governments that overly regulate the energy sector.

 

[Uncle_Vanya]

No. There are two possible scenarios. First, if the cost of production is rising and they raise prices to compensate. Second, if a firm raises their price arbitrarily they will be undercut and/or replaced by compliments.

Unless all the oil companies agree to raise prices together, which might very well be the case.

That's the abstract, here's the real world application. I'll use Exxon as an example and the supposed 'price gouging'. Their accounting profit margin per dollar of oil sold is 10% meaning they make 10 cents off every dollar spent on gas. That has remain fairly constant (as in only changing in the decimal places). Looking at the accounting profit margin of most businesses 10% is actually relatively low.

Can't really look at it that way, oil is a commodity, doesn't compare with other products as far as profit margin goes.

Second, prices aren't set by the firm, they are set by the market. If a firm tries to set the prices above zero economic profit (separate from accounting profit) they will be driven out of business. Likewise, if they set their price below zero economic profit they will go bankrupt. The market price is set by the consumer in demand (in how it relates to supply).

I know that the price is set by the market, but by not drilling in the areas there they could drill the oil companies are influencing the market. We've been over this, I think you said you understood it than I said that the market is always controlled.

If the energy market was actually a free market in the United States, this is where the buck would stop. However, it isn't and the blame goes to, as with many problems, government intervention in the economy. All you have to do is look at the history of government actions in response to special interest groups. Some kind of investment becomes profitable and government stops it. This has been the case with large scale nuclear power and surprisingly enough, if you go back 20 years, wind energy (because environmentalists felt is looked ugly and thus destroyed the landscape).

Agreed, I hate the lobbyists as well, but there is no oil lobby, US government is the oil lobby, many people in Bush's administration have held or are still holding executive positions in oil companies.

Oil firms aren't gouging us; they are hostage to the demands of consumers, the restrictions of a limited supply of oil, and governments that overly regulate the energy sector.

The thing is that the supply is limited only because they don't drill in the places they are allowed to drill. So for example, whats the point of letting them drill off-shore if they're not going to even if they have permission?

 

[Tipsy]

Unless all the oil companies agree to raise prices together, which might very well be the case.

Wouldn't that imply their profit margin would increase? Let's look at Exxon's profit margin since gas prices have begun to rise:
In 2005: 10.1%
In 2006: 10.8%
In 2007: 10.0%
If what you were suggesting was true, profit margins would be going up rather than staying relatively stable.

Can't really look at it that way, oil is a commodity, doesn't compare with other products as far as profit margin goes.

Why exactly can't it compare in the context of seeing if there is price gouging or not?

I know that the price is set by the market, but by not drilling in the areas there they could drill the oil companies are influencing the market. We've been over this, I think you said you understood it than I said that the market is always controlled.

The thing is that the supply is limited only because they don't drill in the places they are allowed to drill. So for example, whats the point of letting them drill off-shore if they're not going to even if they have permission?

It's cheaper to drill in some places than others. If they have access to drill to places with a positive rate of return then they will drill there.

 

[Galatia]

Gas prices are already high in Europe though, compared to US.

Gas prices were always high in Europe compared to US.

 

[Darkmatter]

We're catching up...though prices here are dropping again.