Wednesday, May 28, 2008

Its summer...and oil prices keep on rising.

So it was pointed out to me that I haven't updated the blog of late. This is a major faux pas in blogging apparently. Actually, its summer. As they say in academia - the top 3 things about being a professor are June July and August. In my case, its just July and August as I am teaching a summer MBA course.

I read a piece recently about Exxon and it's strategy for managing it's franchises. Basically, Exxon HQ knows exactly what each one is charging and varies the wholesale cost to them based on what the local market can stand. From the point of the franchisee this isn't that great, as in times of high gas prices you are still only making pennies per gallon. The full article is here.... The basic tone of course is that big bad Exxon is sticking it to all of us. Well guess what... they are. Its called capitalism.

Exxon is acting entirely rationally in a shareholder wealth maximizing manner. We may not like it, but that's the way it is. Get over it, or don't buy Exxon gas - but buy Exxon stock.

But, since we are on the issue of so-called wind fall profits here are a few other firms/industries that need to be examined.

1. Apple computer - why can't I have an iphone for $99? You know they are making a boatload on those puppies. Loads of demand and carefully controlled supply helps maintain a high price and a nice margin. Hmmm, maybe congress should sue them to make more. (see here for a related article)

2. Farmers - food prices are up. Corn prices are at records because of global demand and ethanol production. Those guys are enjoying some great "windfall" profits.