April 18, 2012
Can the President Lower Gas Prices?
President Obama has claimed that there is no "silver bullet" to reduce gasoline prices. I beg to differ. Any rational business, upon being told that a new competitor is planning to enter into competition with them, will first reduce prices. Why? Well, it's obviously not to match the prices of a potential competitor who isn't even in business yet. The purpose is to demonstrate to the new kid on the block that (a) because of their much higher sales volume, the older business can still function at lower unit prices and (b) if the new kid wants to compete, he will have to sell at these new, lower prices, and suffer the lower operating margins associated with those lower prices. This is known among the cognoscenti as "raising a barrier to entry." The point of the effort is to make accessing the existing market so expensive, in terms of the newcomer's return on investment and the length of time before the cost of the original...(Read Full Article)