From Matthew Lewis, an energy economist and associate professor in the John E. Walker Department of Economics at Clemson University:
Gas stations should almost never run out of gas. Yes, occasional disruptions in the fuel supply network are going to occur, due to extreme weather events or accidents like the recent Colonial pipeline failure that disrupted delivery of fuel to the Southeast.
Unfortunately, much of the hardship consumers experience during these events results from gasoline being unavailable to those who need it most because too much was purchased by others who didn’t really need it. How could we more effectively encourage those who could get by with a little less gasoline to leave more for those who need it?
Higher gasoline prices.
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For consumers in the Southeast who found it difficult recently to find gas for essential trips like getting to work or school, would you have been willing to pay more than $2.25 a gallon for it? I suspect most of you would have, because a few years ago you were regularly paying over $3.50 and driving nearly as much as you are today.
Yet last month, gas stations continued right on selling gasoline for not much more than they were before the pipeline disruption, and many ran out before you had the chance to buy.
Stations could be selling gasoline for more in the affected areas, but most have not out of fear of violating state “price gouging” laws like those in North Carolina, Tennessee, Georgia, and other states, which prohibit sellers from raising prices during declared emergency events. 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 fact, there were frequent reports of panic buying during the shortage. Consumer stockpiling reduces the amount of gasoline available to those who really need it and wouldn’t be necessary at all if prices had risen appropriately when the supply disruptions first became apparent.
Higher prices can certainly be an economic hardship on consumers, particularly the lower-income. Yet a week or two of gas prices that are a dollar higher than usual would only cost a typical driver $20 to $40.
This is a significant hit on the budget for some, but not nearly as big as the cost of missing a day of work because you ran out of gas. If you think it would have been worth it to pay more recently rather than worry about not having gas, you might also find it worthwhile to encourage your government representatives to consider more sensible legislation on pricing during emergency events.