Bobbie Jean Harvey had a problem: She was quickly running out of gas. It was September 11, and four airliners had just been hijacked and slammed into the World Trade Center and the Pentagon. Panicked customers were flocking to the two gas stations Ms. Harvey owns near Midland, Mich., to top off their tanks in case the supply of gas was disrupted.
Ms. Harvey’s primary fuel supplier sent an emergency fax at midday, warning that there had been “an immediate reaction by the major oil companies regarding supply and price.” A second fax directed her to “manage your inventory,” i.e., don’t sell more gas than what you sell on an average day, because more gas might not be available.
By 2 p.m., it became apparent that gasoline sales on September 11 were not going to be average. Long lines of cars were waiting to fill up, and customers were filling cans and barrels. Ms. Harvey raised the price of her gasoline 20 cents, from $1.89 per gallon, and imposed a $50 limit, but that had little effect on demand. She raised the price again in the early evening to around $3 per gallon, before closing two hours early.
The next morning, Ms. Harvey’s supplier rescinded the previous day’s warnings, so she reduced the price to the normal level. She also voluntarily refunded “overcharges” to customers.
Then she was contacted by the state attorney general’s office, which accused her and 48 other gas stations around the state of using the panic of September 11 to rip off the public. Attorney General Jennifer Granholm issued an ultimatum: either apologize, refund money, pay fines, and admit wrongdoing, or face charges of charging “grossly excessive” prices and deceiving and taking advantage of customers. Ms. Harvey declined the first option, so the state took her to court. I don’t know what the outcome was, but if she lost, she would have had to pay a fine of up to $25,000 plus the state’s legal expenses.
So what is a “grossly excessive” price? It’s not defined in any Michigan statute, and no state court has ever defined it, either. But according to Stanley Press, the assistant attorney general in charge of the Consumer Protection Division, the price of gas at Ms. Harvey’s two stations was clearly excessive under the circumstances.
Ms. Harvey said that, in hindsight, she wishes it had never happened and that it might have been better if she had just closed her stations on September 11. Mr. Press said that would have prevented the state’s legal action.
So, is Ms. Harvey guilty of the charges against her? Let’s look at it.
First of all, Ms. Harvey had bought the gas, so it belonged to her. As its owner, she could have done a number of things with it: stored it in a tank, used it for her personal use, or sold it. If she had decided to sell it, she could have charged whatever price she wanted to for it. If she charged too much, she would sell little if any gas, and if she charged too little, she would run out of gas and maybe even lose money. Ms. Harvey is in business to make money, and the only way that she can do that is by having gas available to sell.
Ms. Harvey’s supplier warned her that the oil companies had already raised the price of gas. If she wanted to remain in business and continue to make money, she had no choice but to pass along the anticipated price increase to her customers. But the higher prices that she was charging had a positive effect that was unseen by her customers or the attorney general: It sent a strong, unmistakable signal to the oil companies that said, “Hey! We want some more gas, and we want it NOW!”
Given the higher price that the oil companies would have received, I’m sure they were doing everything they could to get gas to Ms. Harvey’s stations so they could receive the high price and earn some money. Without such a signal, the oil companies would have had less of an incentive to rush gas to Ms. Harvey’s stations.
The higher price also served to ration a scarce good (Ms. Harvey’s gas) to those consumers who wanted it the most, and it did so quietly, in an efficient, peaceful manner. Many consumers wanted gas on September 11, but some wanted it more than others and were therefore willing to pay more for it. If Ms. Harvey had left the price below the market price, much of the gas would have been sold to consumers who weren’t willing to pay as much for it but who got to Ms. Harvey’s gas stations before other consumers who were willing to pay more.
So, did Ms. Harvey deceive her customers or take advantage of them? How did she deceive them? She told the public that she was selling gas at a certain price, and those consumers who chose to buy gas from her were charged that price. Did she take advantage of them? While it’s true that consumers who were low on fuel on September 11 were in danger of running out of gas during the coming days, Ms. Harvey didn’t force them to buy gas from her. She had to persuade them by offering a price that was low enough to draw them away from her competitors.
If she had tried to deceive or take advantage of her customers, word would have gotten out that she was a dishonest and unethical businesswoman, and consumers would have avoided doing business with her. As she said, “I didn’t make it for 25 years in business [by] ripping off customers.”
If anyone should apologize, refund money, pay fines, and admit wrongdoing, it should be Ms. Granholm, Mr. Press, and the Michigan attorney general’s office. Unlike the situation with Ms. Harvey, no one ever voluntarily agreed to pay for their services, which are probably grossly excessive in price. They take advantage of consumers through their legal monopoly on coercion, and they deceive consumers by telling them that their office protects them.
