- #31
russ_watters
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Haven't you ever asked yourself why, if that was true, did all the oil companies earn record profits last year? BP and Exxon determined through competition what markups they were willing to live with and when the price doubled, the profit doubled (actually, more than doubled since the fixed costs did not change). There is no reason for either of them to change their markup in that kind of situation. If you add a new tax, it does not affect supply and demand at all, it only effects profit. So both can simply pass the cost on to the consumer, and the competitive situation remains unchanged.That is still governed by supply and demand - ie. the price at the pump. Go ahead Exxon, raise the price artificially. BP will gladly take the business.
And no, BP cannot take the business. Supply and demand for oil are both very tightly constrained. BP could not siply undercut Exxon's price and take all of their business - they'd have to first spend billions of dollars for years to build the infrastructure. So if BP undercuts Exxon's price and runs out of gas because they can't meet the new demand, what does that mean? It means they could have charged more for the same amount of gas.
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