Note that many salient features of capitalist society can be deduced from this fact.
First, reducing the price to be "competitive" is practically a nul option--but increases of only pennies and dimes on selectively chosen targets can generate fabulous profits at an "inconvenience cost" to the customer.
Second, since price competition isn't a big option on a per gallon basis, it makes sense to give out selective benefits to customers on a rationed basis--like a free glass if you buy more than X gallons, which is carefully calculated so that only a small fraction of customers will qualify at a time.
Third, and here I am talking not just about gasoline but all high volume merchandising from aspirin to gasoline or what have you, since price competition yields only minimal advantages to consumers it makes sense to advertise the shit out of a product. A deafening propaganda is more successful at moving the product than any price move. It may be objected that stores have generic brands which factor those costs out. The so-called generics are, usually, made by the same people that sell the brand names. They compete against themselves. To the extent that volume can be had by low pricing, they get that, and incidentally by pricing low keep competitors out of the market. To the extent that propaganda more successfully moves a product they benefit there, too. But as part of our "culture of capitalism" we can see that large scale efficiencies of production combined with high volume sales point to strategies which are advertising based rather than price based. This is not because of conspiratorial pricing strategies (though these often exist) but because consumers are in many instances insensitive to small price differentials on inexpensive (per unit) products. But the net effect is to create the advertising consumer culture which has effectively displaced religion as an ordering principle of society.
Fourth, even a small, non-monopolistic margin like 2c per gallon on a volume of 10 billion gallons (and annual costs of $1b) yields enormous profit and wealth. This must perforce have a serious effect on the concentration of political power.
Fifth, the system has a built-in risk of crises. A small drop in consumption, say, to 9.8 billion gallons in the example above, will drop annual profits from (12 cents gal)*(10b gals) or 1.2 billion (w/20% return) by (200 million) * (12 cents), $24,000,000. This is because, in this example, with high fixed costs, the loss of 2% of sales volume amounts to a 12% hit on profits. This gives an incentive to raise prices in the face of declining sales. Furthermore, anything which pushes prices in the other direction (failure to predict a growth in demand) may cause profits to soar. But super-profits in one high volume sector may result in decreased demand in another high volume sector.
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
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