Are local DC gas wholesalers and retailers gouging on price?

Rich Lowery of the NY Post apparently doesn’t think that could be. He called out
“shameless demagoguery” and “economic illiteracy” when President Biden urged
“companies running gas stations and setting prices at the pump” to “bring down the price
you are charging at the pump to reflect the cost you’re paying for the product.” See
https://nypost.com/2022/07/05/biden-blasting-gas-stations-economic-illiteracy-or-
shameless-demagoguery/
But economic analysis turns on facts. For a local example, in the District of Columbia
Gas Buddy reports for 7/6/2022 that several stations in DC are charging $5.05 per gallon,
while other stations in DC are charging prices like $4.45, 4.54, and $4.69. See
https://www.gasbuddy.com/gaspricemap?lat=38.94031259746692&lng=-
77.00923321831054&z=13
For a further local example, a 2013 Washington Post article by Mike DeBonis explains
that one corporate wholesaler group had exclusive supply agreements with roughly 60
percent of the 107 gasoline retailers operating in the city, according a lawsuit brought
by the DC Attorney General: “As a result of these agreements, the [Mamo companies]
set the wholesale prices paid for Exxon-branded gasoline in D.C., depriving D.C.
residents and others … of the benefits of competition.”
https://www.washingtonpost.com/blogs/mike-debonis/wp/2013/08/27/d-c-attorney-
general-takes-new-aim-at-gas-mogul-joe-mamo/
Is it clear from these facts that some DC gasoline station retailers and wholesalers are
behaving badly, or illegally, or that government intervention is needed? Not necessarily.
It can be argued that posted prices and Gas Buddy reporting mean that competition can
work, so that drivers can drive a few minutes to benefit from lower prices. Also, perhaps
rents or other costs of doing business explain retail price discrepancies.
Direct or indirect power over retail prices by a dominant local wholesaler may or may not
be a basis for a finding of bad or illegal behavior, depending on the fact details.
But, it is hardly “economic illiteracy” or worse for the DC AG to be concerned by price
discrepancies, retail prices that do not reflect lower crude oil prices, and apparent
dominance by a local wholesaler. Even the simple set of facts from Gas Buddy suggests
an idea worth exploring about the profits being made by those stations charging $5.05 per
gallon rather than, say, $4.70 a gallon. Unless the $5.05 stations have decided to buy gas
from local wholesale terminals at much higher prices than the $4.70 gas stations, the
$5.05 gas stations might be making about 35 cents more per gallon than other stations.
The Economics 101 principle in play here is that more may actually be more.
In 2020 DC AG Racine sued Capitol Petroleum, a major DC gasoline seller, alleging price
gouging. Borrowing from the wording of the AG’s press release, Racine filed a lawsuit
against Capitol Petroleum Group, LLC (CPG), a leading retailer and distributor of
gasoline in the District of Columbia, as well as several affiliated companies, for illegal
price gouging during the District’s COVID-19 emergency. The Office of the Attorney
General’s (OAG) investigation revealed that even as wholesale gas prices dropped
when the economy slowed in March and April 2020, CPG unlawfully doubled its profits
on each gallon of gas sold to consumers at 54 gas stations in the District. OAG also
alleged that CPG and its affiliates, Anacostia Realty, LLC, and DAG Petroleum
Suppliers, LLC, unfairly increased profit margins they earned on gas distribution to other
retailers. “With this lawsuit, OAG is seeking a court order to stop CPG from violating the
District’s price gouging and consumer protection laws, relief for consumers who were
charged unfairly high prices, and civil penalties.”
Whether illegal price gouging has occurred is a technical legal question beyond the
scope of this brief note. The point here is simply that great price discrepancies raise
concerns that are reasonable for an AG to explore. For those interested in the legal
issues, a copy the DC AG’s price gouging complaint is available
at: https://oag.dc.gov/sites/default/files/2020-11/Capitol-Petroleum-Group-
Complaint.pdf
With regard to the 2013 DC AG lawsuit mentioned above, Washington Post reporter Mike
DeBonis.
explained that the lawsuit targeted “exclusive-supply agreements” between the most
powerful local gasoline wholesaler and the independent dealers who operated
wholesaler-owned stations. ExxonMobil was also named as a defendant in the case, as
it established the agreements in question before selling 29 stations to wholesaler-station
operator Mamo in 2009, and could still enforce them through its supply contracts with
distributors.

The 2013 AG lawsuit never resulted in an enforceable judgment in DC’s favor, but
instead followed a tangled procedural history that is beyond the scope of this note, as
are the precise merits or demerits of the case.

But the bottom-line point is clear. It is reasonable, and not an exercise in economics 101
illiteracy to worry that in the District of Columbia area it might be true that some gas
sellers are selling gas at retail prices that are much more above cost than are other
retailers. They may be doing it because of issues of market power. That is, they do it
because they can.

The fact points drawn from the District of Columbia experience are hardly unique.
Similar retail pricing variations are reported by Gas Buddy throughout the US, and a
number of US metropolitan areas have powerful gasoline wholesalers.

It is neither demagoguery nor a failure to grasp Econ 101 principles to think that State
Attorneys General should be concerned and conduct investigations when some local
gas retailers charge much more than others, when retail prices do not decline to reflect
lower costs, or when local wholesalers appear to directly or indirectly control retail
prices of a high percentage of retailers.

More broadly, there may be good reason for AG investigation whenever retail gas prices
are not responsive and proportionate to changes in the price of oil. Mr. Lowery’s
suggestion that such investigation puts “shameless demagoguery” and “economic
illiteracy” in play in fact reflects his tendency to demagoguery and ignoring relevant facts
that are in plain sight.
Don Allen Resnikoff 7-9