Today I received a “send this to 10 other people” email, instructing me to boycott Exxon. The theory was that a massive consumer boycott would force the oil giant to lower its gas prices, and other oil companies would be forced to follow suit. I am not an economist, but something tells me that market equilibrium would upset the whole process. For example:
– An Exxon station is located across the street from Oil Company B in a small town. Both sell gas for $2.70/gallon. Let’s assume for the purposes of this hypothetical that Oil Company B isn’t actually a subsidiary of Exxon, which it probably really is (Exxon, Esso, Mobile, etc., are all one)
– Consumers boycott the Exxon station and buy gas only at Oil Company B
– Oil Company B is delighted at the reduced competition and it raises its price to $2.75/gallon
– Exxon continues to offer gas at $2.70, or perhaps it drops its price one cent to $2.69/gallon. Maybe it even sends Joe, the station attendant, home early every night because the station isn’t busy. Now Joe, who was just trying to make ends meet, can’t afford to feed his kids
– Consumers eventually get sick of paying $2.75 at Oil Company B, and they flood back to the “cheaper” Exxon
– Exxon raises its price back to $2.70, and Oil Company B lowers its price back to $2.70
– Consumers have made no profit. Exxon lost some profit during the boycott, but regained most of it when consumers flooded back. Oil Company B gained profit during the non-competitive period, and then lost some profit as consumers returned to Exxon. Everyone pretty much breaks even, except that some people feel silly for boycotting Exxon, and Joe has to take out a loan at 19.8% interest so that his daughter can get her insulin. Poor Joe. Why did you do that to him?
Anyway, I ride the subway.