Robert Rapier at R-Squared Energy Blog noticed the EIA showing gasoline inventories at their lowest levels since 1967, and because consumption rates are higher now than in 1967, he pointed out that “days of supply” in inventory is probably at its lowest level ever. Rapier comments:
Someone asked during a panel discussion at ASPO whether we were going to have rationing by price. I answered that we are having that now. But prices aren’t going up nearly as much as you would expect during these sorts of severe shortages. Why? I think it’s a fear that dealers have of being prosecuted for gouging. So, they keep prices where they are, and they simply run out of fuel when the deliveries don’t arrive on time. If they were allowed to raise prices sharply, people would cut back on their driving and supplies would be stretched further.
Rapier quotes favorably this explanation by Gary North:
Instead of raising prices, in an attempt to reduce demand for gasoline, thereby allocating gasoline that was in short supply by means of price, station managers simply let people fill up their tanks until the pumps were empty. Anyone who wanted gasoline after that was out of luck.
This is rationing by lining up. It is the alternative to rationing by price. Rationing by lining up creates no financial incentive for suppliers of the item in short supply to allocate new supplies to the region of the country which is experiencing a shortage. Instead, delivery schedules remain the same as they did prior to the shortage. This continues the shortage.
Whenever there are complaints about price gouging during a period of a shortage, sellers get the message. The next time there is a shortage, they hesitate to raise prices. They shift to the other allocation system: first come, first served.
UPDATE: iReport.com offers the following image of a Circle K sign in North Augusta SC with no prices listed for gasoline. The contributor comments, “Places are still out of gas, waiting on more shipments. Either the gas is too high or there is none to buy.”
Note that the South Carolina Attorney General invoked the state’s price gouging law as of noon on September 12, 2008. Typically state price gouging laws require the governor to declare an emergency in the state. South Carolina’s law allows the Attorney General to invoke the law when the President declares an emergency in another state, and the emergency presents an “abnormal disruption of the market” that affects the market in South Carolina. President Bush had declared a state of emergency for Texas and Louisiana on the previous evening.