The southeast US is being hit twice with fuel disruptions.
The first event was by a pipeline leak of the Colonial Pipeline in Alabama (here). People panicked as a result of hyped-up media coverage. People filled up as a way to hoard gasoline in their vehicles and hopefully have enough until supplies returned. Luckily, there were no price gouging laws because that would have discouraged suppliers from coming in from unconventional sources to provide more fuel. Slowly, supply is returning.
However, the end is in sight. Woodring said gas is already coming in and the shortage will end soon.
“We got it this morning, but only half a tank. We usually get 7,000 to 10,000 gallons when we’re out and we got 3,000. So that’s what happens,” Woodring said. “It is pumping in right now, but it still has to fill up.”
The second event is Hurricane Matthew. It is about to hit the state of Florida and travel up the coast. Any existing price gouging laws will limit supply.
These laws are intended to protect sellers from taking advantage of consumers. But more often they exacerbate shortages by forcing sellers to sell gasoline at prices that are below what it would actually cost to obtain additional supplies.
Although many of these laws allow prices to increase to reflect higher costs, stations and fuel suppliers are often unsure of how their relevant costs might be interpreted by enforcement agencies.
As a result, they frequently choose to keep selling until supplies run out rather than increasing their price.
So how would things be better if gasoline prices had risen to, say, $3.50 a gallon last month? First, many of you would have bought a little less gasoline and drove a little less by combining trips, postponing unnecessary driving, or sharing rides. The higher the price, the more you save by using less. This would ensure gasoline is still available at the station for those who really need it.
Second, higher prices in areas impacted by the supply disruption would encourage even greater efforts by suppliers to bring in additional supplies from surrounding areas. Relocating fuel from other regions can be quite costly, and less fuel will flow in if this additional cost cannot be recouped when the gas is sold.
Third, if prices were high enough to significantly reduce usage and increase supply imports, stations would be much less likely to actually run out of gas. “Panic buying” and consumer stockpiling can occur if consumers believe they may not be able to purchase when they need to.
In the supply/demand calculus, price gouging laws limit supply and increase demand.