In a Capitalistic society, why shouldn't oil companies be allowed to charge what the market will bear?

Question

Price controls create shortages. Oil companies first obligation is to their shareholders. It's insane that the free market isn't allowed to set the price of oil.

Answer 1

I thought that the rest of the world was insane for wanting price controls. At least tere's two free marketers here.

Answer 2

If by "capitalistic" you mean "free market," then maybe under those circumstances they should.

In the world we live in, oil companies and downstream refining businesses are an oligopoly. The market is rigged from top to bottom.

On the input side, access to oil reserves in most parts of the world is achieved through bribery and corruption. This is not only true in the third world but also in the US, where access to offshore oil or the ANWR is essentially a gift from the government to oil producers.

In other parts of the world, it's even more straightforward: some of the most corrupt governments in the world are those that rely heavily on oil revenue. This concentrates money in the hands of a thieving elite.

On the distribution and refining end, the oil companies collude to manipulate refining capacity to create artificial shortages. This drives the price up.

They have also been known to install corrupt regimes in the US that invade countries such as Iraq in order to further manipulate the oil market. Put differently, they have instigated war crimes and crimes against humanity in the pursuit of profit. The blood of every dead Iraqi civilian and US soldier is on their hands.

The behavior of the oil firms is closer to that of organized crime than it is to some Friedmanite pipedream of free markets. It's not a level playing field when you can buy off the referee and shoot the other side.

Oil should be nationalized, then increasingly taxed since consumption is contributing so heavily to the greenhouse effect. I'd rather have the state running them than them running the state. Oil company executives should be banned from holding public office (sorry, Condi, sorry Karzai), and senior executives should be put on trial.

Answer 3

I think it's the way you asked your question - "..the market will bear." It is less to do with what a market will "bear" but rather what people are forced with. If you have a $3 tank of gas that USE to be $1.50 and your business is in trucking, then you have no choice but to accept it. Granted, this is hypothetically based on "trucking." In regards to regular people who have to drive to work, school, etc theortically speaking, they "HAVE" to bear it - no choice simply because they have to get to school and walking 15 miles is not an option.

Quite honestly, I can assume you know enough about commodities,that there really is no shortage of gas - it's obvious that the pricing set by the market is based upon speculation and an obscene occurrence that happens in the world to give these speculators any opportunity to raise the price as quickly as possible.

There's never been a shortage of gasoline - the oil companies were hit by regulators for their profit earnings. In a capitalistic society, that's ok and I think oil companies should be able to set prices; it simply breaks-down to a sheer volume of greed - a billion dollars in their pocket wasn't enough.

Answer 4

I generally agree with your reasoning, and believe the oil companies should be able to charge whatever they want. They are the ones who spent the time, effort, and resources getting the oil out of the ground- had they not done this, no one would have had that oil. Since they did all the work, they own the oil. Since they own the oil, they should be able to ask anything they want in exchange for it.

That being said, one could claim that the acquisition of oil is not something reasonably open for anyone to do. One could claim that the amount of capital and technical knowledge required to get oil out of the ground keeps the vast bulk of humanity from having any chance of getting oil other than through those with the means to pump it out.

Or, more compellingly, one could claim that there are government restrictions which limit the number of entrants into the oil market. Environmental, zoning, or property regulations may legally prohibit competitors from even trying to get oil of their own. It's kind of like the provision of certain utilities or cable services. The government necessarily(?) creates a monopoly, and then regulates the monopoly to prevent abuse and inefficient allocation. One could claim that oil is likewise "monopolized" by the government, which prohibits too many prospectors or pump sites for environmental reasons. As such, they must regulate prices to counteract the effects of the monopoly.

For a variety of reasons I do not accept either of these arguments for oil price regulations, but I must admit they have some merit.

Answer 5

Good question, we are clearly not a purely capitalist country, the government has been exerting more and more control over the economy as years pass.

First, the government does not set the price of oil, they tried to do this in the 70's during the oil embargo and it was disasterous. But they do control it indirectly by putting tariffs on alternative resources and subsidizing oil companies. We cannot make an immediate change in U.S. oil policy, the result of doing so would destroy the American economy, since all our goods are delivered by trucks and planes, which use fuel, prices of all goods would skyrocket.

However, as the price of oil continues to go up, the government could gradually loosen its grip, and we would be forced to find alternative ways to power vehicles. Which we should be doing sooner than later anyway. (Every gas station in Brazil has Ethanol fuel pumps and every car there is Ethanol compatible)

Answer 6

a Capitalist society (which does not exist on earth) is one in which the government does not coerce others, so in such a system oil companies would possess the right to set whatever price they wished, for it is their product, and if they wanted to charge 1 million dollars a gallon they could, for the price of a good must be acceptable to the seller or their is no sale, you can't go into a store and decide what you want to pay for a good that is the prerogative of those who are selling it. So to answer your question it can not be a capitalist system if the seller does not get to determine the price, it would be either a socialist (fascist) or a communist society.

Answer 7

You are absolutely correct. A lot of people think the free market sets the price. However, it doesn't.

The causes of the recent run up in gasoline and crude oil prices are not hard to find. There is a rising global demand for crude oil, in large measure because of rapid economic expansion in China and elsewhere in Asia. At the same time, the supply of crude oil is sharply restricted by the fact that most of the world’s supply has been nationalized by various governments. This greatly reduces incentives and the ability to find and develop new oil supplies. And this applies in large measure even to the United States, in which vast land areas are owned by the Federal government, which has progressively reduced the ability of the American oil industry to develop petroleum deposits on government-owned land. The leading examples, of course, are the North Slope in Alaska and the continental shelf in the Gulf of Mexico and off the coast of California. These problems of government-caused lack of supply are compounded by threats to the existing supply in Iran, Nigeria, and Venezuela. Besides these problems affecting the price of crude oil, there are also special, additional problems affecting the price of gasoline. One is the fact that since 1976, because of environmental regulations, not a single additional oil refinery has been constructed in the United States. As a result, according to Oil and Gas Journal, total oil refining capacity in the US today is less than it was in 1981: 16.8 million barrels per day versus 18.6 million barrels per day. Add to this the devastation of Hurricane Katrina, from which Gulf Coast refinery operations have not yet fully recovered. Add to that, the further problems caused by the government’s compelling the production of specially reformulated gasoline, to meet environmental requirements.

Answer 8

the free market does set the price of oil.

Answer 9

Because some people like to complain about things they don't understand and regurgitate the half truths (or sometimes full lies) that they hear on television.

The last time the government interferred with the price of gas, it kinda didn't work out, if you remember. I think society has memory problems.

Answer 10

It is in the interest of oil companies to regulate gas prices. Too much of a premium would stimulate interest in alternative fuels. And then their little cash cow would be dead.