Some Monopolists
25 May 2006
Program Director, Washington Post Radio (WTWP)
Dear Sir or Madam:
Interviewed by morning host Mike Moss (May 24), Mark Cooper of the Consumer Federation of America argues that the reason oil companies have built no new refineries in the U.S. for the past thirty years is that they possess "monopoly power." According to Mr. Cooper, the resulting lack of refining capacity keeps gasoline supplies artificially low and prices and profits artificially high.
Mr. Cooper's allegations fit poorly with the evidence. In 22 of the 27 years from 1978 through 2004, return on investment in U.S. refining capacity was below that of the average of all other lines of business.* This relative unprofitability of refining, rather than "monopoly power," is the most plausible reason why investment in refining capacity has been lackluster.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
* http://www.eia.doe.gov/emeu/perfpro/fig28.htm
Program Director, Washington Post Radio (WTWP)
Dear Sir or Madam:
Interviewed by morning host Mike Moss (May 24), Mark Cooper of the Consumer Federation of America argues that the reason oil companies have built no new refineries in the U.S. for the past thirty years is that they possess "monopoly power." According to Mr. Cooper, the resulting lack of refining capacity keeps gasoline supplies artificially low and prices and profits artificially high.
Mr. Cooper's allegations fit poorly with the evidence. In 22 of the 27 years from 1978 through 2004, return on investment in U.S. refining capacity was below that of the average of all other lines of business.* This relative unprofitability of refining, rather than "monopoly power," is the most plausible reason why investment in refining capacity has been lackluster.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
* http://www.eia.doe.gov/emeu/perfpro/fig28.htm
Posted by Don Boudreaux on
Friday March 9, 2007 at 4:10pm