Wednesday, October 26, 2005

Two From Knowledge Problem

And to think, only a few days ago, Lynne was apologizing for her lack of output... anyway, a couple Knowledge Problem posts worth noting. First, high prices are reducing demand for gasoline -- whoda thunk it? And second, "Rockets And Feathers", in which we learn that gasoline prices tend to spike up quickly but drift down slowly, and the driver for this is consumer behavior.
Matthew S. Lewis has a paper on the effects of consumer search behavior on retail gasoline prices [Link to PDF]. One result, obvious to me now that it has pointed out, is that retailer profit margins are higher when prices are falling (and consumers do less shopping around) and lower when prices are rising. So which business would you rather be in, on with low profits and unhappy customers or high profits and happy customers?