House Price Gouging Bill Worse for Consumers Down the Road

May 23, 2007

NPRA, the National Petrochemical & Refiners Association, Executive Vice President Charles T. Drevna today shared the association's concerns with the U.S. House of Representatives' passage of H.R. 1252, the Federal Price Gouging Prevention Act. "As we've said, price gouging legislation is a solution in search of a problem and totally contradicts the advice given by the Federal Trade Commission," Drevna said. "The federal government has found no evidence of market manipulation or gouging. At a time when gas prices are higher than normal because the traders have reacted adversely to lower than normal inventories stemming from necessary facility maintenance, passing legislation may provide a good political talking point, but it'll take far more creative talking points to address the real problems created down the road by this legislation. We'd strongly encourage the Senate to consider the unintended consequences should it debate this or a similar bill."What the Federal Trade Commission (FTC) Has Said About Price Controls on Gasoline

  • "Consumers might be better off in the short run if they did not have to pay higher prices for the same quantity of goods; in the long run, however, distortions caused by controls on prices would be harmful to consumers' economic well-being." [emphasis added]
  • "If prices are constrained at an artificial level for any reason, then the economy will work inefficiently and consumers will suffer. Economists have known for years that price controls are bad for consumers, and the deleterious effect extends far beyond strictly fixed prices. The constraint need not be total or permanent to have adverse effects. 'Soft' price caps that allow for some recovery of price increases, or a price gouging statute that temporarily constrains prices during periods of emergency, still may have the effect of misallocating resources by reducing the incentives to produce more and consume less. Thus, any type of price cap, including a constraint on raising prices in any emergency, risks discouraging the kind of behavior necessary to alleviate the imbalance of supply and demand in the marketplace that led to the higher prices in the first place." [emphasis added]

(FTC Chairman Deborah Platt Majoras, Testimony, U.S. Senate Commerce, Science and Transportation Committee, May 23, 2006) In the Aftermath of Hurricane Katrina, the FTC "[F]ound:

  • No evidence to suggest that refiners manipulated prices through any means, including running their refineries below full productive capacity to restrict supply, altering their refinery output to produce less gasoline, or diverting gasoline from markets in the United States to less lucrative foreign markets. …
  • No evidence to suggest that refinery expansion decisions over the past 20 years resulted from either unilateral or coordinated attempts to manipulate prices. Rather, the pace of capacity growth resulted from competitive market forces. …
  • No evidence to suggest that oil companies reduced inventory to increase or manipulate prices or exacerbate the effects of price spikes generally, or due to hurricane-related supply disruptions in particular. Inventory levels have declined, but the decline represents a decades-long trend to lower costs that is consistent with other manufacturing industries. In setting inventory levels, companies try to plan for unexpected supply disruptions by examining supply needs from past disruptions. … ." (FTC Press Release, May 23, 2006

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