I saw a post this evening that reminded me of this topic. That and the fact that all everyone talks about anymore is the price of gasoline. I realize that oil prices, and thus gas prices have gone up dramatically in the last couple years. However, I am frustrated with the outrage of these prices. In business, if you have a product that everyone wants, you should raise your prices until you suffer because demand goes down (it is a fairly simple supply-demand economic principle). When it comes to gasoline, however, people want to ignore economics completely.
Also, everyone is screaming about record profits for oil companies and want a windfall profit tax. However, let’s look at a real measure – profit margin – instead of the glamorous profit. According to a CNN Money commentary:
The average net profit margin for the S&P Energy sector, according to figures from Thomson Baseline, is 9.7%. The average for the S&P 500 is 8.5%. So yes, energy companies are more profitable than many others…but not by an inordinate amount.
Google, for example, reported a net profit margin of 25% in its most recent quarter. Should we have an online advertising windfall profit tax?
I do agree that and subsidizing of oil companies should be discontinued, if it is occurring, as they do not need the subsidies. However, we must be content as consumers that they have a product we need, and we should not be surprised that they raise prices when the price of their good and the demand go up.