Why gas prices go up much faster than they come down

You might have heard over the weekend that skyrocketing gas prices have finally "plateaued." If gas prices were like gravity, you would anticipate they would start plummeting soon.  Raise your hand if you expect that.

Me neither.  While the words "skyrocketing" and "gas prices" often end up in the same sentence, "plummeting" and “gas prices” rarely occupy even the same paragraph. In a perfect free market, prices should float up and down with equal speed. But in our market, what goes up doesn't seem to come down, at least not at once.  What gives?

We've been told for months that instability in the Middle East spooked the traders who set gas prices, which are almost $1 per gallon more at the pump than a year ago. Prices jumped 30 cents from mid-March to mid-April alone, to an average $3.88 a gallon.  What are odds, do you think, that average prices will return to $3.58 by mid-May?

The quick rise/slow fall phenomenon will feel familiar to most consumers, who often explain it with this conventional wisdom -- greedy retailers take advantage of temporarily high prices as long as they can to sock away a little extra profit.


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