Economics of Liberty

Gas War in Toledo Lowers Prices to 1¢ a Gallon

Toledo Gas War Indicates Competition is Good for Consumers

[dropcap size=big]O[/dropcap]ne of the most difficult things to do when trying to sell libertarianism to a leftist is to answer the question: “But what about the poor?” Indeed, it’s hard to believe that national hunger will end out of the goodness of people’s hearts, but it’s also hard to believe that homelessness and poverty could ever be stomped out of existence for good. Normally, a more effective approach to selling free market ideologies would be to advocate not for making the poor richer by giving money voluntarily, but by making everything easier to afford. How would you this? Is this even possible? Well, if you look at what happened as soon as a computer glitch initiated market mechanisms on the supply-demand curve in Toledo, Ohio, such a phenomenon is possible, but rare under the state.

While some might credit a computer glitch to this uncommon incident and write it off as a rare curiosity, examples in the video aren’t as magical as you think. In economics, price is dictated by how much supply of a good or service a supplier (in this case, the gas station) and how much a consumer (the drivers) can come to a consensus on. Take an area like gasoline, where the industry in some places is tightly regulated via carbon taxes and zoning laws and therefore the price is artificially raised by the state’s bureaucracy.

There are determinants as to why prices raise and lower. They are:

  • 1.) Factor costs – This includes the cost the state imposes on the suppliers to do business.
  • 2.) Technology – This includes hydraulic fracking, which has influenced the lowered price of gasoline as of late.
  • 3.) Expectations – This includes things like holidays. If more people will travel, suppliers will adjust prices accordingly.
  • 4.) Number of sellers– More sellers raise production, which increases supply, lowering the price.
  • 5.) Profitability of alternative pursuits- This is if a gas company decided to pursue alternative ventures. If the company decided to begin investing in solar panels, there would be less resources to invest in the gasoline refineries, which would in turn affect gas prices.

In Toledo, we are offered a rare glimpse at what would happen should there be less factor costs and a high number of sellers. In this case, a computer glitch ignored the factor costs of state-imposed factor costs and lowered below what the gas company needed to maintain a profit given those factor costs.

In the presence of a monopoly, the computer glitch would have been fixed and the price would have risen again. However, that’s not what happened. Since there was a high number of sellers to compete with, the other sellers were forced to lower their prices in order to attract customers. This is determinant number 4 at work. And it lowered the price to such a low level that there is no possible way anyone could argue prices were too high.

This is a lone incident in Toledo, but it shows what could happen if factor costs created by the state are removed or ignored. In today’s market, prices are so high because suppliers need to hire armies of lawyers and accountants to navigate them. However, in the absence of these factor costs, it’s evident that many goods would be much more affordable to everyone.

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