Quote:
Originally posted by Tyrone Slothrop
What you're saying here doesn't make sense to me, though perhaps the failure is mine. Assume that producers cannot substantially increase production beyond current levels. If the taxes were to disappear tomorrow, why would they not pocket that margin and leave their prices the same? If they have limited ability to bring refined gasoline in from other countries, then maybe that affects the price a little on the margin, but there can't be much capacity there.
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Because there's competition. They no longer have to pay 20c to the government for every gallon sold. Taxes drive a wedge between price paid and revenue obtained. Oil cos. are producing all they can for revenue of market price less gas tax. So, presumably they're satisfied receiving that amount for their level of production. Put differently, if they could raise prices without a tax, they could raise prices with a tax. Yet they aren't, because of competition and consumer demand.
