The free enterprises system at work

[rustled]

Your explanation may be more helpful to us than any "gotcha". Why not give it a try?

Alright. 1st off, I'll come right out and say I'm not an economics expert, nor am I intimately familiar with this market. However, there are a few easily observed manipulations in this market:
- There is an entire cartel than has been openly created to manipulate the market to their advantage and controls almost 1/2 of the world's oil supply. https://en.wikipedia.org/wiki/OPEC
- Supply is being manipulated. OPEC and others purposely limit supply when demand drops to artificially inflate prices/profits. One of the articles quoted even mentions this "OPEC may open the spigots"
- It's clear to any casual observer that price-fixing/collusion is happening at the pumps. All stations in town having the same price, all switching to a new price within hours of each other - that doesn't happen naturally.
- International treaties or national laws limiting export/import.
- Additional taxes placed on fuel/crude imports, often threshold based and always designed to protect the value (AKA Profit) of the domestic market.

Outside of this not being a free market, the articles themselves clearly state a large change in supply. The law of supply and demand says "Prices will increase as supply decreases". So the articles actually reinforce the supply/demand cost cycle more than they prove it's fictional. No idea how OP came to conclusion "Demand falls, prices increase" from those articles as the message clearly is "Supply has decreased increasing cost".

Thanks for the explanation. I appreciate it.

So as I understand it now:

1. Oil is NOT a good example of a free market because in a true free market system the prices are set by individual owners (to reflect input costs and what consumers are willing to pay for the goods they're selling), whereas the oil industry is controlled by agencies other than these individual owners who have their own agendas and set prices independently of input costs and ensure the pump cost does not give the consumer the option of shopping elsewhere.
2. So the consequences for us at the pump are NOT a direct result of inflation or money printing, either - they're primarily a result of the manipulations of these agencies.

Is this about right?

[TylerM4]

So as I understand it now:

1. Oil is NOT a good example of a free market because in a true free market system the prices are set by individual owners (to reflect input costs and what consumers are willing to pay for the goods they're selling), whereas the oil industry is controlled by agencies other than these individual owners who have their own agendas and set prices independently of input costs and ensure the pump cost does not give the consumer the option of shopping elsewhere.
2. So the consequences for us at the pump are NOT a direct result of inflation or money printing, either - they're primarily a result of the manipulations of these agencies.

Is this about right?

Essentially yes.

[hobbyguy]

"Fashion" is increased supply, Hobbyguy.

Nope. "Fashion" tends to be artificially created demand.

Beanie Babies, Pet Rocks, Celebrity "x" wears such and such shoes is one such example set.

One of the manipulations is to create an impression of shortage to create artificial demand. Tell people they better watch out for a shortage of "x" and they will start hoarding - the increased apparent demand (although often short lived) will drive up prices and in a self fulfilling prophecy way create a shortage.

Another manipulation is to create the impression of "premium" brands. There is no functional difference between a Honda CRV and an Acura RDX, yet one commands a higher price (based primarily on a fashion consideration). Etc.

We have seen spikes in prices of things like celery due to fads - which are just a product of fashion.

Some of these things happen because of rumors that become self fulfilling prophecies. There never was a shortage of toilet paper - but that one sure took off. That's a "fashion" effect.

It is a broad set things that feeds into "fashion" effects. 'New" is one of them. Ever notice how much attention is paid to IPOs?? No "community" is immune to such effects. Part of that is FOMO.

FOMO is certainly a driver in real estate prices.

In essence, I am using "fashion" as a metaphor for the irrational part of free markets. That irrationality is widespread and endemic to free markets everywhere. Yes, we would like to have simplistic explanations like Friedman tried to deliver, but applying simplistic rules to complex systems, especially ones that exhibit high degrees of irrationality, is doomed to be nonsense.

[TylerM4]

All sorts of neat tricks to artificially influence demand as HobbyGuy has pointed out.

Here are a couple of common other approaches:
- Make the consumer self conscious and sell a solution to solve it. EG - you stink, your teeth aren't white enough, you're fat, etc.
- Influence the consumer to use more of the product than necessary. Alka Seltzer pioneered this approach when they introduced a marketing campaign that was designed to influence customers use two tablets at at time - hugely successful and they nearly doubled product demand as a result. Another example - Shampoo instructions that say "wash, rinse, repeat". Rare that people actually need to soap/wash their hair twice. Toothpaste ads always show the maximum amount of toothpaste you could fit on a brush, etc.
- Give the consumer the impression that your life will be better/amazing if you had their product. Car companies selling "adventures" if you buy their car, beer companies where if you drink their beer you'll have a great time and be surrounded by beautiful women, etc. Carefully produced to not make direct claims or course - only to imply.
- Most "Limited supply" type marketing. They have lots don't worry ;)

[The Green Barbarian]

Beanie Babies, Pet Rocks, Celebrity "x" wears such and such shoes is one such example set.

I was wondering how any of this pertained to the OP's point, and then I realized that almost all of this was just completely off topic. In terms of celebrities hawking gas, I did boycott Petro-Canada for awhile when they had Jay Baruchel doing those horrid ads asking people to link their RBC cards to Petro-Points. Jay Baruchel is a communist, so not sure why he was working with PetroCanada and RBC, but anyway, I voted my disappointment in PetroCanada by filling up at Esso. May go back some day, we'll see.

[Glacier]

"Fashion" is increased supply, Hobbyguy.

Nope. "Fashion" tends to be artificially created demand.

All demand is artificial.

[foenix]

Nope. "Fashion" tends to be artificially created demand.

All demand is artificial.

How so.....what do you mean?

[foenix]

Beanie Babies, Pet Rocks, Celebrity "x" wears such and such shoes is one such example set.

I was wondering how any of this pertained to the OP's point, and then I realized that almost all of this was just completely off topic. In terms of celebrities hawking gas, I did boycott Petro-Canada for awhile when they had Jay Baruchel doing those horrid ads asking people to link their RBC cards to Petro-Points. Jay Baruchel is a communist, so not sure why he was working with PetroCanada and RBC, but anyway, I voted my disappointment in PetroCanada by filling up at Esso. May go back some day, we'll see.

Not me...... 3 cents off a litre is better than nothing and that sounds like cutting off your nose to spite your face.

[marooned]

THIS is the free enterprise system at work:

https://www.theguardian.com/news/2021/o ... d-powerful

[Glacier]

How so.....what do you mean?

Demand is always because humans desire something. They might desire it because their friends have it, because of advertisements on TV, because it would make life easier, or because it looks athletically pleasing. Augment or change human desires, etc. and demand changes.

[TylerM4]

Demand is always because humans desire something. They might desire it because their friends have it, because of advertisements on TV, because it would make life easier, or because it looks athletically pleasing. Augment or change human desires, etc. and demand changes.

I agree with you, but only to a point.

Certain goods/services would be classed as "essential" and not really something you can avoid purchasing. EG - Electricity, water, food, medicine, housing, clothing, etc.