On Monday, I challenged you to decide if a boycott of Exxon/Mobil will reduce gas prices as suggested by an e-mail chain letter. A lot of good answers and comments came in, both here and over at the Oil Drum, where they cross-posted the challenge to get a peak-oiler view on the question. Now I will give you my take. First I'll give you the simple supply and demand answer then I'll get a little more realistic and talk about some of the real-world issues.
Will a boycott of all Exxon/Mobil gas stations force Exxon/Mobil to reduce their gas price? The simple answer is: No. What happens at all the other stations? For the sake of argument let's suppose that Exxon/Mobil has a 25% market share--I have no idea what the real number is, but it doesn't matter for this argument. Assuming EVERYONE boycotts EM, that means demand at other stations increases by 25%. When demand increases, prices rise. So the effect of the boycott is to increase prices at all other gas stations...OOPS.
On the bright side--for Exxon that is--the boycott makes Exxon/Mobil gas look cheaper by comparison.
Alright, now for some added reality. What will Exxon's reaction be to the boycott? At first you might think that Exxon will panic and start dropping the price. Maybe, but they really wouldn't have to drop the price much because as soon at the price starts to fall, some greedy SUV driving, McMansion owning, anti-environmental exurbanites-hey, I resemble that remark--will use his unnecessary four wheel drive to run over the picketers and get the $.05 cheaper gas at Exxon. Wait, I forgot, I'm assuming EVERYONE will uphold the boycott so Exxon has to be hurt right?
Nope. Turns out that gas is surprisingly fungible. That is, gas is gas. Whether it comes from Exxon or Shell or wherever, the basic product is the same. So what will Exxon do? When the boycott hits, Shell will be faced with a sudden 25% increase in the demand for their gas. It takes a little while to get gas to the pumps, so the temporary shortage will cause Shell to raise their prices. But how will Shell fill their new demand for gas? Most refineries are already running at 90-95% of their capacity, so it's unlikely Shell can fill the shortage in-house. So where can Shell get extra gas? How about Exxon?
That's right, gas suppliers buy and sell gas from each other. So the shortage at Shell will be filled by the extra capacity Exxon now has. The net effect? Exxon still sells gas, but now at a higher price. In the short-term the boycott has the net effect of raising gas prices and most likely increasing Exxon profits. In the long-run, the net effect is a break down in the boycott and everything gets back to normal.
So to answer my original question: Can consumers force gas prices lower? Yes, but not through a boycott of one station. The ONLY way consumers can drive down the price of gas is to buy less gas from ALL stations. That's right...Drive down, drive less. Hey, I like that.
Now if each of you will e-mail this link to 10 friends, and each of them e-mail it to 10 friends, and so on, within 3 days, John and I will have 4 gazillion visitors and will have achieved our life-long goal we so wantonly seek: FAME...I'm gonna live forever, I'm gonna learn how to fly...HIGH!
**There are a number of other issues I haven't addressed here, all of which make the boycott argument meaningless: like the industry structure, price gouging, etc. I just think that the basic supply and demand argument is plenty to debunk this Urban Myth.