Cell phones companies, always looking to steal customers from one another with the best new deal - bundled services, unlimited usage, etc. - are at it again. Although all four major providers copied each other last year with a $100.00 month unlimited services package, Sprint is taking the pricing war a step further by offering excessive talkers a way to cut their bill in half. From the New York Times, "Has Sprint Started a New Wireless Price War?":
"If you pay $100 a month or more to AT&T or Verizon Wireless on your wireless bill, don’t expect your bill to drop in half quickly. But the new $50-a-month unlimited wireless calling plan from Sprint’s Boost Mobile brand may well set off some significant price-cutting by wireless carriers.
"Sprint is starting a price war as a way to wring value from the underutilized network of Nextel, the wireless company it disastrously bought in 2005. Nextel’s claim to fame was its push-to-talk feature that let people communicate with other Nextel phones without paying per-minute rates. Now that most wireless operators offer plans that let people call anyone else on their network at no additional charge, demand for this feature is dropping. The limited selection of phones that use Nextel’s iDen technology also has discouraged customers.
"Boost Mobile is a Sprint brand that mainly sells prepaid wireless service meant to appeal to young people, who talk a lot but are very price-sensitive. Boost had 3.9 million customers at the end of last September. (Prepaid service is less expensive to operate than more traditional postpaid service, where customers get a monthly bill for use after the fact, because there are no credit losses. In addition, carriers don’t subsidize the purchase of handsets and often spend less on customer service.)"
Most of the time, as with this example, it's pretty easy to tie consumer demand to pricing trends in a commodity market, but for some reason gas prices never seem to play by the rules.
This article does a great job laying out the relationship of oil prices to gas prices for consumers who may not have an in-depth understanding of global economics. The author first points out, and rightly so, that "big oil" only owns about 5% of retail gas stations (unbenounced to a majority of consumers) and do not therefore profit from spikes at the fuel pump. Conversely, these stations are often independently owned retailers who are trying to whether the current economic storm just like retailers in any other industry. Here is an excerpt:
"Q: Why aren't gas prices falling at my local service station right now?
"A: While oil and gasoline prices very often move in the same direction, there's usually a lag between crude's decline (or rise) and that of gasoline. Analysts say the ongoing uptick is gasoline prices is likely tied to oil's sharp rise at the end of last year, when fighting between Israel and Palestinian militants raised concerns about supply disruptions in the oil-rich Middle East.
"Q: If that's the case, now that oil has retreated to below $40, shouldn't gasoline get cheaper?
"A: It should — and it might — but other factors are at play.
"For one, the companies that process crude into products such as gasoline are sharply cutting production, in part because demand has fallen off so much. Less production means less supply, which tends to push prices up.
"The gasoline producers are trying to make some money in the wake of a dismal 2008. When crude prices were so high in the first half of last year, refining margins — the difference between what refiners pay for crude and what they get for products they make from oil — were dismal. In the latter half of the year, margins improved as oil prices receded, but refiners continued to struggle because people were simply driving less and buying less gasoline.
"Companies that refine oil are publicly traded. If they don't turn a profit, they won't be around long.
"Refiners are not going to continue to sell gasoline at a discount to crude oil," said Ben Brockwell, director of data, pricing and information services for the Oil Price Information Service. "It simply hasn't paid to produce gasoline."
Q: But doesn't that mean they're simply inflating the price of gasoline?
A: That's the opinion of the nonprofit group Consumer Watchdog, which tracks the industry closely and has consistently called for greater regulation of refineries.
"Consumer Watchdog says production cuts at refineries in California, for example, have far exceeded the state's drop in consumption.
"The refinery cutbacks are for purely financial reasons," said Judy Dugan, the organization's research director. "Now is the time for government to insert sharper oversight and regulatory controls of the refining industry."
Q: How does my local station set gas prices? Does it follow orders from corporate headquarters to keep prices as high as possible?
A: One thing many people don't realize is that major oil companies own fewer than 5 percent of gas stations. Exxon Mobil Corp., for example, said last June it was getting out of the retail gasoline business, following other major oil companies who've been selling the low-margin businesses to gasoline distributors.
"Most stations are owned by small retailers — and many say they took a beating last year when crude prices spiked because they were unable to raise pump prices fast enough to keep pace.
"That's exactly why some stations raised prices quickly after oil futures jumped late last year: Not because the more expensive oil had made its way through the production process, but because they saw an opportunity to make some money after struggling with paltry profits for months. So the usual lag between oil and gas prices may not have occurred this time around at some stations — they wanted to raise prices, and they didn't feel like waiting.
"Gas station owners face a balancing act: They must try to maintain a price that allows them to afford the next shipment of gasoline, but they're also trying not to give the competition an edge."
Read the full article: "Meltdown 101: Why gas prices rise while oil drops".
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