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This seems like pretty typical market behavior to me. Are we really surprised that banks are taking the opportunity to increase their profits by choosing not to

This seems like pretty typical market behavior to me. Are we really surprised that banks are taking the opportunity to increase their profits by choosing not to pass down all savings to customers? The same exact thing happens with gas stations. The price of gas never falls quite as fast or far for the consumer as it does for the retailer, but gas stations will instantly respond to price increases. I’m sure there are dozens of other examples of this.

buran77 6y ago
Most companies I ever worked for did the same, in particular the ones in the oil&gas sector. Any increase in crude or taxes would immediately be passed down to the consumer. Any decrease and they'd be issuing a press release stating that "the markets don't respond so quickly to price fluctuations". It works best in industries with no real competition because of the high barrier of entry, and with a common interest between the players to keep the practice going, even when there's no explicit collusion or cartel forming.
podgaj 6y ago
I can never seem to find that "Invisible Hand" when I need it....
leetrout 6y ago
I heard this story / explanation before: You own a gas station and you want to fill up your tanks so you call the distributor and pay $1 / gallon. You then sell that for $1.10 / gallon making a 10% profit. Now prices of crude doubles and you have 1000 gallons left to sell. It’s going to cost you $2 / gal to refill so you immediately raise your price to prevent a loss and cover the next fill. I don’t know how accurate that is to the real situation gas stations face but I’d never thought of it in terms of selling higher to afford the next bulk delivery.
- rightbyte 6y ago
  Oh ... interesting take. But how did they order the first tanker? Surely there has to be credit involved in most cases.
  - OJFord 6y ago
    Yes, typically bought on credit and then sold for cash with which to buy the next load on credit, etc.
- bryanlarsen 6y ago
  But when the price drops back down you don't immediately drop your price because why would you charge $1.10 for something you paid $2 for? But your competitor will lower their prices when they get a refill, so you may end up having to lower your prices before you get your own refill.
  - leetrout 6y ago
    Yep, correct.
- Threeve303 6y ago
  This is what happened during Katrina and some of the hurricanes of the past decade or two. The situation with the banks is slightly different. The odds that the product, money, will cost more for them in the future does not line up with the recent history of bailouts, regulation changes, etc. During Katrina, for example, it was a safe bet for the gas station owners that the next batch of gasoline could cost significantly more. A reasonable assumption due to the multiple wars in the middle east combined with a bad hurricane season shutting down gulf coast refineries. In other words, the Federal Reserve did not run a discount window to provide cheap oil to gas stations. Even the strategic petroleum reserve, if tapped, would only benefit the refineries. At any rate, one could argue that in both situations the entities involved made the safest and most profitable decision available to them.
- Spooky23 6y ago
  The gas station is an agent of the oil company and gets paid commissions. The gas is on consignment, owned by the upstream oil company. The big oil company uses futures and options to manage risk. All aspects of that industry have slowly reconsolidated, so the market forces that push prices down are generally weak.
  - fennecfoxen 6y ago
    Also, most gas stations don't make significant profits on gas. They make more profit on the attached convenience store. There are exceptions (e.g. near airport rental car returns, or in places where drivers aren't paying for their own gas — there used to be a Shell near San Mateo City Hall that always got on the front page of newspapers)
- kevin_thibedeau 6y ago
  That's nice but doesn't explain 30% hikes the day after a global supply disruption. They still have cheap gas in their tanks.
  - leetrout 6y ago
    I understood it that everyone in the chain raises their prices to cover how high it’s predicted to be.
learnstats2 6y ago
Doesn't this just prove that there is not a competitive market in these industries? If I - and everyone else - could quickly identify which bank/gas station was acting in my interest without colluding, I would immediately switch. The fact that prices are quick to rise but slow to fall is dependent on consumer apathy and monopolistic behaviour/collusion. It might be typical market behaviour, but it's not the perfect market that economists commonly base their models on.
- save_ferris 6y ago
  > If I - and everyone else - could quickly identify which bank/gas station was acting in my interest without colluding, I would immediately switch. I doubt this would be the case for most people for a couple of reasons. First, gas stations are pretty transactional businesses that don’t rely on recurring customer relationships to stay afloat, it’s really all about the location. When was the last time you researched all the gas stations in your area and looked for the one that you felt served your interests above all the others? Nobody shops for gas this way. Second, when gas stations maintain prices as their upstream costs come down to pad their margins, they’re doing so in cents per gallon, not dollars. A customer may save a dollar or two depending on the size of their tank, which isn’t enough of an incentive to stick it to the greedy gas station because you gotta be sure that the next gas station you’re headed to isn’t doing the same thing or costs even more. The gas station, OTOH, probably sees hundreds if not thousands of dollars in extra revenue per day depending on their volume for doing this.
  - phaedrus 6y ago
    > When was the last time you researched all the gas stations in your area and looked for the one that you felt served your interests above all the others? Nobody shops for gas this way. I do. I own a classic(ish) car that both requires high octane gas and no ethanol. There's one gas station chain around that can be relied on to have it (in addition to every other fuel option imaginable). But I'm a relatively price-insensitive customer; I'd probably still buy from them at $5/gallon when others are at $2.50. Part of that is because of being happy with the chain, and part of it is anger at other chains for dropping non-ethanol options.
mwexler 6y ago
Airline "fuel surcharge" ticket fees come to mind. As high fuel costs plummeted, the fees did not.
- sukilot 6y ago
  That's different. It's just marketing BS to artificially suppress the advertised price, which does float competitively.
mapgrep 6y ago
It may be typical but it is a useful counterpoint to the idea that markets are efficient for consumers. If markets “worked” as so much propaganda insists they do, banks would rush to increase interest rates, and gas stations to cut prices, when market conditions allow in order to better attract customers. In reality market inefficiencies allow predatory behavior (it takes time for consumers to notice interest rate changes; gas stations can practice soft informal forms of collusion). Free market and anti regulation advocates like to deny or avoid discussing this.

buran77 6y ago

Most companies I ever worked for did the same, in particular the ones in the oil&gas sector. Any increase in crude or taxes would immediately be passed down to the consumer. Any decrease and they'd be issuing a press release stating that "the markets don't respond so quickly to price fluctuations". It works best in industries with no real competition because of the high barrier of entry, and with a common interest between the players to keep the practice going, even when there's no explicit collusion or cartel forming.

podgaj 6y ago

I can never seem to find that "Invisible Hand" when I need it....

leetrout 6y ago

I heard this story / explanation before: You own a gas station and you want to fill up your tanks so you call the distributor and pay $1 / gallon. You then sell that for $1.10 / gallon making a 10% profit. Now prices of crude doubles and you have 1000 gallons left to sell. It’s going to cost you $2 / gal to refill so you immediately raise your price to prevent a loss and cover the next fill. I don’t know how accurate that is to the real situation gas stations face but I’d never thought of it in terms of selling higher to afford the next bulk delivery.

rightbyte 6y ago
Oh ... interesting take. But how did they order the first tanker? Surely there has to be credit involved in most cases.
- OJFord 6y ago
  Yes, typically bought on credit and then sold for cash with which to buy the next load on credit, etc.
bryanlarsen 6y ago
But when the price drops back down you don't immediately drop your price because why would you charge $1.10 for something you paid $2 for? But your competitor will lower their prices when they get a refill, so you may end up having to lower your prices before you get your own refill.
- leetrout 6y ago
  Yep, correct.
Threeve303 6y ago
This is what happened during Katrina and some of the hurricanes of the past decade or two. The situation with the banks is slightly different. The odds that the product, money, will cost more for them in the future does not line up with the recent history of bailouts, regulation changes, etc. During Katrina, for example, it was a safe bet for the gas station owners that the next batch of gasoline could cost significantly more. A reasonable assumption due to the multiple wars in the middle east combined with a bad hurricane season shutting down gulf coast refineries. In other words, the Federal Reserve did not run a discount window to provide cheap oil to gas stations. Even the strategic petroleum reserve, if tapped, would only benefit the refineries. At any rate, one could argue that in both situations the entities involved made the safest and most profitable decision available to them.
Spooky23 6y ago
The gas station is an agent of the oil company and gets paid commissions. The gas is on consignment, owned by the upstream oil company. The big oil company uses futures and options to manage risk. All aspects of that industry have slowly reconsolidated, so the market forces that push prices down are generally weak.
- fennecfoxen 6y ago
  Also, most gas stations don't make significant profits on gas. They make more profit on the attached convenience store. There are exceptions (e.g. near airport rental car returns, or in places where drivers aren't paying for their own gas — there used to be a Shell near San Mateo City Hall that always got on the front page of newspapers)
kevin_thibedeau 6y ago
That's nice but doesn't explain 30% hikes the day after a global supply disruption. They still have cheap gas in their tanks.
- leetrout 6y ago
  I understood it that everyone in the chain raises their prices to cover how high it’s predicted to be.

learnstats2 6y ago

Doesn't this just prove that there is not a competitive market in these industries? If I - and everyone else - could quickly identify which bank/gas station was acting in my interest without colluding, I would immediately switch. The fact that prices are quick to rise but slow to fall is dependent on consumer apathy and monopolistic behaviour/collusion. It might be typical market behaviour, but it's not the perfect market that economists commonly base their models on.

save_ferris 6y ago
> If I - and everyone else - could quickly identify which bank/gas station was acting in my interest without colluding, I would immediately switch. I doubt this would be the case for most people for a couple of reasons. First, gas stations are pretty transactional businesses that don’t rely on recurring customer relationships to stay afloat, it’s really all about the location. When was the last time you researched all the gas stations in your area and looked for the one that you felt served your interests above all the others? Nobody shops for gas this way. Second, when gas stations maintain prices as their upstream costs come down to pad their margins, they’re doing so in cents per gallon, not dollars. A customer may save a dollar or two depending on the size of their tank, which isn’t enough of an incentive to stick it to the greedy gas station because you gotta be sure that the next gas station you’re headed to isn’t doing the same thing or costs even more. The gas station, OTOH, probably sees hundreds if not thousands of dollars in extra revenue per day depending on their volume for doing this.
- phaedrus 6y ago
  > When was the last time you researched all the gas stations in your area and looked for the one that you felt served your interests above all the others? Nobody shops for gas this way. I do. I own a classic(ish) car that both requires high octane gas and no ethanol. There's one gas station chain around that can be relied on to have it (in addition to every other fuel option imaginable). But I'm a relatively price-insensitive customer; I'd probably still buy from them at $5/gallon when others are at $2.50. Part of that is because of being happy with the chain, and part of it is anger at other chains for dropping non-ethanol options.

mwexler 6y ago

Airline "fuel surcharge" ticket fees come to mind. As high fuel costs plummeted, the fees did not.

sukilot 6y ago
That's different. It's just marketing BS to artificially suppress the advertised price, which does float competitively.

mapgrep 6y ago

It may be typical but it is a useful counterpoint to the idea that markets are efficient for consumers. If markets “worked” as so much propaganda insists they do, banks would rush to increase interest rates, and gas stations to cut prices, when market conditions allow in order to better attract customers. In reality market inefficiencies allow predatory behavior (it takes time for consumers to notice interest rate changes; gas stations can practice soft informal forms of collusion). Free market and anti regulation advocates like to deny or avoid discussing this.