JR Ewing Gas Stations - Why Competition Is Good

[Kenny Coyote]

This was a good illustration of why competition is good. JR and Bobby competing against each other increased the overall level of competition in the Texas oil industry and resulted in lower prices for the consumer and continued to until government got involved. Donna's government panel of oil industry overseers decided that JR shouldn't be able to pump as much oil as he was pumping and resulted in him having to shut down his gas stations.

Donna was operating under the assumption that if that continued, in a few years Texas wouldn't have any oil industry left. People don't just start wasting gas because they pay a few cents less per gallon because that's not the nature of the product. It's not a luxury item people use as much as possible as long as they can afford it. People buy enough to meet their needs and the money they save allows them to spend more on other, less-essential items like going out to restaurants or to the movie theaters. That stimulates those industries! Most of the gas people use is commuting to and from work and that is the same amount of driving whether gas prices drop a few cents per gallon or remain the same. People aren't going to keep their homes uncomfortably warm just because the price of oil to heat their homes drops.

When the government stays out of business and allows competition, the consumers are the winner because they get the lowest prices for the goods they need to buy. The cartel members and others who showed up at that season's barbecue represent the worst in businessmen - the ones who don't want any competition so they can collude to keep prices high. They were mad because having to compete and also charge lower prices to remain competitive would cut into their profits. They were colluding to keep prices unnaturally high and when someone decided there was a opportunity to make money by lowering prices, they resorted to threatening violence. It was the mentality of: Keep prices high or we'll lynch you.

 

[Lastkidpicked]

Donna was operating under the assumption that if that continued, in a few years Texas wouldn't have any oil industry left

Interesting post, Kenny. And you put it up there at a perfect time.

Oil prices dropped like crazy here in Texas last month. West Texas Crude was $ 63.27/ barrel this time last year. This morning when I checked (and believe me, I check every morning) the price dropped to $ 22.76. And it is now down 9% since I checked this morning.

I'm the Punk Anderson of the group, always telling the young guys, "Times are good now, but for every boom there is a bust. Put some money away for the bust."

(You can imagine Punk Anderson telling this to the young guys):

"Listen, Kid. You are making more money than you have made in your life. Put 20% of your paycheck into savings each week. You can do that and still have all the spending money you need.

Now, let's say I'm right, and there is a bust coming. You'll be fine because you put a bunch of money into savings each week. You'll just go home and live off your savings until the next boom. Your friends who didn't listen will be less fortunate."

(Again, picture this with Punk talking):

"Now, let's say I'm wrong. Let's say there's never a bust. Let's say oil goes to $100 a barrel and stays there forever. Now, you listened to me and you have a pile of money in your savings account. Is that such a terrible thing?"

 

[Lastkidpicked]

The cartel members and others who showed up at that season's barbecue represent the worst in businessmen - the ones who don't want any competition so they can collude to keep prices high.

We don't have cartels down here in Texas anymore. Natural competition has taken care of things.

Without a cartel, competition is more pure, and here is what we see on a regular basis:

We are running a business serving oil fields. Not getting rich, but doing pretty well. Then a bunch of investors sees us and thinks they can start a company and make a bunch of money undercutting us.

Without a cartel, there is nothing to stop this. But competition weeds them out pretty quickly.

And after about a year of losing money, the investors figure out that if they undercut me then they aren't making any money. So they shut down and send all their equipment to the auction.

And guess who is there picking up the good deals on equipment? Your old buddy, The Last Kid Picked!

 

[Kenny Coyote]

Interesting post, Kenny. And you put it up there at a perfect time.

Oil prices dropped like crazy here in Texas last month. West Texas Crude was $ 63.27/ barrel this time last year. This morning when I checked (and believe me, I check every morning) the price dropped to $ 22.76. And it is now down 9% since I checked this morning.

I'm the Punk Anderson of the group, always telling the young guys, "Times are good now, but for every boom there is a bust. Put some money away for the bust."

(You can imagine Punk Anderson telling this to the young guys):

"Listen, Kid. You are making more money than you have made in your life. Put 20% of your paycheck into savings each week. You can do that and still have all the spending money you need.

Now, let's say I'm right, and there is a bust coming. You'll be fine because you put a bunch of money into savings each week. You'll just go home and live off your savings until the next boom. Your friends who didn't listen will be less fortunate."

(Again, picture this with Punk talking):

"Now, let's say I'm wrong. Let's say there's never a bust. Let's say oil goes to $100 a barrel and stays there forever. Now, you listened to me and you have a pile of money in your savings account. Is that such a terrible thing?"

That's a huge drop and I bet it reminds you of the oil crunch (around 1986 and 1987). Oil had dropped so low. It devastated the oil states like Texas, Oklahoma, Louisana and Mississippi. I heard businessmen describe that situation as a "megatrend." Businessmen didn't know what to do because when you're caught up in something that big like a megatrend, everything you've learned in the past suddenly no longer works!!!

All the businesses that were even indirectly related to the oil business, in other words, almost all businesses in oil states, were going under or just barely hanging on. Braniff Airlines went under. Major hotel chains went under! Rock and country stars who were on American tours skipped the oil states! It was that bad. The entertainment dollar was no longer there because people were spending what little money they had on essentials. They didn't have $15 for a concert ticket so bands skipped those states entirely on their tours. I heard that even the streets in the French Quarter that were usually filled with hookers suddenly became empty of any working girls because once again, the entertainment dollar (or entertainment $150) was just gone! When even vices - some of the few things people continue even in a depression - go under, you know that is a serious situation.

I think what we're gonna be experiencing soon if this pandemic doesn't relent is gonna be another megatrend in that everything you've learned in the past no longer applies! No matter what businesses do, they're gonna be liable to go under or be forced to sell. How does a nightclub stay in business during a pandemic? It doesn't matter which bands you book or what kinds of interesting specials you offer like "ladies drink free until 10PM" because you can't even be open for business! It's getting pretty damned scary.