Price Fixing Frustration

I read recently that Canadian and U.S. officials are investigating chocolate manufacturers on charges of price fixing. All the big guys are involved: Hershey, Nestle, Cadbury, Mars. And it seems the firms are admitting that, "Yeah, you caught us with our hands in the chocolate chip cookie jar all right. We discussed pricing together for years."

Which explains why candy bars are all pretty much the same price. Sure, Wal-Mart will sell some cheaper as a loss leader or just to make a few more pennies at the impulse aisle, but for the most part candy bars are all priced about the same. Check it out next time you indulge at the vending machine.

Price fixing is bad. It's collusion. A few big companies command the lion's share of a market so they quickly figure out that working together to set prices beats price wars anytime. Why beat each other up when there is money enough to be made for all?

Doesn't it seem strange then that gasoline prices all move at the same time at all stations and in just about the same amount? I don't think this is because we have such a tight grasp on inventory levels or oil prices, refining costs and delivery fees that we know, right down to the penny, how much a gallon of gasoline will cost consumers.

Adding to the frustration is that all the convenience stores, self-serve stations and anybody else selling gas in a given area raise (occasionally lower) gasoline prices at the same time and for the same amount consistently no matter which oil company they represent. But then, this is an industry dominated by a few large companies who probably figured out a long time ago what chocolatiers have only recently discovered: it's better to play together in the sandbox rather than compete for the toys.

Curious, though, that neither Washington nor Ottawa nor anyone else has sought to investigate this little phenomenon. It seems an obvious place to look.

I concede I may be wrong about all this. Manufacturing and distribution costs may be exactly the same for everyone who produces gasoline from crude oil, and those who set pump prices are so skilled at the task that it is by sheer coincidence alone that prices move all at once, in the same direction and at the same rate.

I was born at night. But it wasn't last night.