What do you understand about how gas prices are determined? Do you believe that

Question

What do you understand about how gas prices are determined? Do you believe that the policy needs to have changes? State your opinion and support it by using the simple pricing model and external evidence critiquing or supporting your arguments.

Describe your opinion of direct and indirect price discrimination. How do these strategies affect consumers? Do these strategies violate the intent of antitrust laws or do you think they are ethically defensible practices for businesses? Explain your rationale. What factors would have to change to make you change your opinion?

Explanation / Answer

66% of the gas price is directly determined by price of crude oil and other 34% is combination of various taxes, refining costs and margins of the gas station.

This comes down to a larger question of how crude oil price is determined, It is determined by large commodity exchanges which speculate and trade crude oil.

Price discrimination in crude oil is a reality. If you buy gas in saudi arabia it is lot cheaper than it is in United States, If you buy same amount of gas in UK or India it is much more expensive, this is happening just because of huge taxes that governments around world are imposing.

Crude oil is also sold to domestic market at much lower prices than to international market this is nothing but price discrimination.

Anti-trust laws are in place to defend customer rights and stop monopolies. But, in oil sector which demands economies of scale, huge companies are a necessary evil. Besides, oil exchanges actually made oil trade more and increased prices. Commodity exchanges must regulate prices of oil to certain extent. Speculation of oil price can actually be dangerous for the economy.

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