Gas prices
Price of Paradise · Hawaii Public Radio · aired 1998-03-29
Guests: David McClain (Professor, University of Hawaii); Leroy Laney (economist); Joe Bob Riley (Chevron representative (Marketing, Hawaii)); Ted Klaus (Deputy Attorney General)
Duration: 1:04:34

[00:00:00] Randall Roth: Aloha, this is Randy Roth, host of the Price of Paradise show. We're broadcast live Sunday mornings on KHPR and KKUA, and then rebroadcast Sunday evenings, beginning at 8:00, on KIFO. Everyone who works to bring this program to you is a volunteer who believes in the importance of lively and informed public dialogue. We believe the brightness of any community's future is directly related to the level of activity in its marketplace of ideas. Our sponsor is the Hawaii Community Foundation, an organization that encourages grass-root efforts to improve the quality of life in Hawaii and that administers charitable funds with efficiency and compassion.
[00:00:38] Randall Roth: And I'll just mention to our technician that I can hear what's going on in the uh technician's booth right now through my earphones. Uh, as anyone who's been in Hawaii for very long knows well, the price here is significantly higher than it is in other states. That's been the reality for a long time, but a lot of folks were particularly upset in recent months when the local price of gas stayed firm despite falling crude oil prices. The assumption seemed to be that the price of gas ought to reflect the cost of the oil from which it came.
[00:01:09] Randall Roth: After all, the price of gas on the mainland dropped quickly and substantially as the price of crude oil dropped, so why didn't that happen in Hawaii? With me in the studio to discuss this question and much more are two highly regarded economists, David McClain and LeRoy Laney. LeRoy has been senior vice president and chief economist at First Hawaiian Bank since 1990. Prior to that, he served in the Federal Reserve System, the US Treasury, and the President's Council of Economic Advisors, as well as in academia. Later this year, he will join the full-time faculty at Hawaii Pacific University.
[00:01:44] Randall Roth: David McClain is the Henry A. Walker Junior Distinguished Professor of Business Enterprise and Financial Economics and Institutions at the College of Business Administration, University of Hawaii, Manoa. His PhD in economics from MIT. He's taught there as well as at Boston University and Keio University in Japan. David was a senior staff economist on the Council of Economic Advisors under President Carter and is the author of a book titled Apocalypse on Wall Street. David, LeRoy, good morning.
[00:02:13] David McClain: Morning.
[00:02:14] Leroy Laney: Good morning.
[00:02:14] Randall Roth: We've got uh some other people that you'll be hearing from during the uh next hour, but I'll introduc introduce them uh in in just a bit. David, why don't you get this conversation started by talking a little bit about the price of gasoline in in Hawaii. That's been in the news a lot the last couple of weeks. There are a lot of us that uh have been riled up over the fact that the prices seem to be stuck at a pretty high number despite what we hear about dropping numbers on the mainland and what we've read about the price of crude crude oil coming uh way down. What's going on?
[00:02:48] David McClain: Well Randy, let me uh put some facts on the table first. Uh the price of crude was about $25 a barrel in January of 97. It was about $22 a barrel in September 97, uh but recently um it dropped to about $13 a barrel. And uh that kind of a drop, for every drop in uh per barrel of a dollar, that should lower gas prices by about two and a half cents since there are about 40 some gallons of gas in uh a barrel of crude oil. Uh on the mainland, gas prices have come down from $1.30 to a dollar uh seven, on average.
[00:03:20] David McClain: Here in Hawaii, they've come down very little, and recent hearings before um our legislature, uh the producers said they dropped them by eight cents uh in in the last couple of three months.
[00:03:30] Randall Roth: Well from the consumer standpoint, something's wrong. Can you figure out what's wrong?
[00:03:35] David McClain: Of course what's wrong is that the prices are high and uh the prices haven't haven't come down. So there hasn't hasn't been a pass-through of uh the lower crude prices to uh to the pump.
[00:03:45] Randall Roth: So in Hawaii, we've got uh two refineries, Chevron and BHP. And then we've got some dealers, some of which are connected to the refineries, some of which aren't. The two refi refineries, they bring in crude oil and then they create various products including gasoline. If the cost of their raw material has come down a lot, and yet what they're getting for their gas hasn't come down, then evidently they're making more money than they were before.
[00:04:13] David McClain: I think that's a fair inference. Uh in industries like this, where you you have a limited amount of uh competition, uh stable equilibria for price are are fairly common. Uh that is prices don't move down because uh if you were to lower price, everybody would just follow you. Uh you'd make less profits and you wouldn't gain any market share. If you were to raise the price, nobody'd go with you, uh and you'd lose market share there too. So uh this kind of stability that we see in industries that don't have a lot of competitors, um is seems to be playing itself out in the local market.
[00:04:40] Randall Roth: Okay, well I'm going to ask you what we can do about it because uh by golly, there are more of us than there are of them, we ought to be able to figure how to how to break that cycle. LeRoy Laney, you and David McClain in this morning's advertiser had an article that um uh that I thought was just a a a beautiful example of economics 101 or economics for the non-economist. Uh can you tell me in just a a few seconds even, what you're getting at in in that article, what you're you're telling us non-economists about this pricing situation?
[00:05:12] Leroy Laney: Well, I think that what we see in Hawaii with respect to oil refineries as well as a lot of other industries here is the fact that you have industries uh we've got more than our share of industries that are dominated by a small number of firms. And I think that there's a reason for that and it has to do with the optimum size of the firm and it has to do with the size of the market here in Hawaii, which is a relatively small market. If you were looking at a um an industry on the mainland, uh you might have 20 or 30 competitors. That's still a relatively small number of competitors.
[00:05:43] Leroy Laney: That's not a perfectly competitive model where you've got an infinite number of producers and you're strictly a price taker. That's what you encounter in the textbooks and you try to teach as one extreme in the classroom.
[00:05:53] Randall Roth: And that's where competition works real well to bring the prices low as it can possibly go.
[00:05:57] Leroy Laney: Exactly. I mean, the perfectly competitive market is got an infinite number of producers, it's got an infinite number of consumers, it's got perfect information, there no patents, uh it's got free entry, there's no barriers to entry at all, either artificial or or real. Uh you you've got um uh an identical product. Uh you very seldom find that in the real world.
[00:06:18] Randall Roth: Well, why don't we have something closer to that in Hawaii than what we do have? In other words, we not only don't have an infinite number of of providers, we've got, as you point out in your article this morning, not just two refineries, but two shipping companies and two movie theater chains and and two local airlines and two major banks and we could go on and on and I like your analogy to Noah's Ark, two of everything.
[00:06:46] Leroy Laney: Two of everything.
[00:06:46] Randall Roth: What's what's wrong? What's What's going on?
[00:06:48] Leroy Laney: Well there's not necessarily anything wrong. Stop step back and think for a minute that that perfectly competitive model that I was just talking about, you you might encounter that in some agricultural markets or some commodity markets but very few other places. Practically all of the fortune 500 firms, for example, are not going to be in that category. You're going to have competition among the few. Even at in in a large economy, like the US economy or even the global economy. Now when you get to a very small market like Hawaii is, you're going to have far fewer firms than that.
[00:07:20] Leroy Laney: Uh the the optimum size of the firm might dictate because of economies of scale and spreading fixed cost, that it's more efficient to have two or three firms. If you had four or five firms, their average cost per unit of output would be higher and they would have to charge a higher price for it than if you had only two. Now it could be that those two firms that are in the industry, you're going to encounter examples where you've got uh tacit price signaling and things going on and you're going to have the stability in price that David was just talking about.
[00:07:51] Leroy Laney: But it's not necessarily clear that the efficient solution is to have more firms in the market.
[00:07:57] Randall Roth: Okay. And and as a consumer, I'm saying to myself, well, maybe with fewer firms it's more efficient, but if greater efficiency simply means bigger profits for them as opposed to some sort of benefit to the consumer, I'm sitting here wondering just what we need to do about all of this and since I've asked the question, we've got on the line a Deputy Attorney General. Uh Ted uh uh Klaus is uh uh Deputy Attorney General and he's followed the gas market for quite some time here in Hawaii. He's the person that Attorney General Marjorie Bronster primarily looks to in deciding what action if any to take against the oil companies in response to their pricing.
[00:08:35] Randall Roth: Uh Ted, can you hear me?
[00:08:37] Ted Klaus: Yes, good morning, Randy.
[00:08:38] Randall Roth: Good morning, Ted. Uh, for how many years have you been following all of this?
[00:08:42] Ted Klaus: About nine years, since the Exxon Valdez oil spill in 1989.
[00:08:46] Randall Roth: Okay. Uh first of all, uh a real short question and maybe it's got a short answer, is there effective competition in Hawaii with respect to the price of gasoline?
[00:08:57] Ted Klaus: Not effective price competition, no.
[00:09:00] Randall Roth: Um, why is that? Is that because the two refineries and perhaps the dealers are sitting down at a table and they're saying, look gang, uh if we try to compete for market share, none of us are going to make much money, but if we just charge uh what the market will bear, if we set a high price and nobody rocks the boat, we're all going to do much better than if we were fighting each other for market share? Is that what's going on?
[00:09:25] Ted Klaus: Yes, that's what's going on, but there are conditions existing in Hawaii that allow that to go on. Uh one is the fact that the market is highly concentrated. Another is that entry barriers, uh that is barriers to the entry of new competition, um are very high. And thirdly, uh the the things that uh a seller of gasoline, a wholesaler or uh or a major marketer of gasoline need to have in Hawaii are limited and controlled by the existing oil companies. That is terminal uh supply of oil and retail market outlets.
[00:10:05] Ted Klaus: The alternative uh with respect to the supply of of gasoline is probably the easiest one to uh to address simply because uh you can get outside gasoline, wholesale gasoline, which is relatively low cost and would be competitive with locally refined gasoline. So uh the critical factors are the local control of terminal space and the local control of retail outlets.
[00:10:32] Randall Roth: Uh Ted, let me ask you a question. Um, if the oil companies were sitting down around a table and and talking about all of this, that would be illegal, wouldn't it?
[00:10:42] Ted Klaus: Yes, it would.
[00:10:42] Randall Roth: And if if that were were going on or if it could be proved that it were going on, then there's definitely something that the Attorney General could do about it.
[00:10:51] Ted Klaus: Yes, that's correct.
[00:10:52] Randall Roth: But if they simply are sitting in their separate offices saying to themselves, you know, if I bring down the price, my competitor is just going to bring down the price and both of us will be making less money. And so acting on their own, based on what they've learned in school and from experience, they're just not competing on a price level, um, is that illegal?
[00:11:16] Ted Klaus: No, it's not. That kind of tacit collusion is not illegal, provided they aren't doing anything else to keep competitors out of the market or anything that contributes in even an inferential way to uh the explicit collusion of of uh the various competitors.
[00:11:35] Randall Roth: So so really, um, you're you're kind of the uh the policeman on this thing. It it seems to me, and and correct me if I'm wrong, that you're watching for two things. You're you're watching to make sure that they aren't actually talking to one another, that there isn't this explicit uh collusion, and you're also watching to see that they don't indirectly, by controlling distribution and that sort of thing, that they aren't indirectly preventing somebody from from coming in and competing.
[00:12:03] Ted Klaus: That's correct.
[00:12:04] Randall Roth: Okay. Well, Ted, if if you can stay on the line for a bit and if you don't have to run, uh we can come back to you later in the hour. Uh, I appreciate you uh being available to us this morning.
[00:12:15] Ted Klaus: My pleasure, Randy.
[00:12:16] Randall Roth: Okay. Uh David McClain, any thoughts on what you heard from Deputy Attorney General Ted uh Klaus?
[00:12:23] David McClain: Well, of course, uh, Deputy Attorney General Klaus certainly knows the law, and and as I understand it's interpretation, it's it would be exactly that way. I would say that um, it is the case that our Justice Department at the national level has looked at some ways of uh that collusion can occur without direct communication taking place, and that has to do with uh such things as most favored customer clauses.
[00:12:47] David McClain: We've all seen those at the retail level at which uh one seller one retailer will tell us that if somebody else undercuts his price, then he'll be willing to compensate you and and reimburse you for the the difference from what you paid and and then what the new lower price is. Um, that's really a way to signal to a competitor that you'd like to keep prices high. And our Justice Department at the national level has used that kind of information uh and in investigations in in other industries.
[00:13:12] David McClain: So uh we are it's not just that uh we we we don't want to see the evidence of direct communication, certain kinds of indirect communication, the signaling sort I just mentioned, uh are also uh questionable and maybe the base for basis for litigation.
[00:13:28] Randall Roth: Okay. Well, you're listening to the Price of Paradise Radio show. My name is Randy Roth. Our topic this morning is, well, it's a couple of things. It's why is the price of gasoline so high in Hawaii, but really, to me, the more important question is why don't we have more price competition in Hawaii? It's not just gasoline. We see problems in uh in lack of price competition across the board. Why is that? If we understand a little better than I currently understand it, then maybe we as a community can do something about it. On the other hand, maybe uh it's a matter of sitting back and grinning and and bearing it. I hope not.
[00:14:03] Randall Roth: I hope that's not the conclusion that we come to. If you'd like to ask a question or make a comment, our number is 9558821. If you're on a neighbor island, the number is 18009558821. Again, our topic is price competition in Hawaii. With me in the studio are two economists, David McClain from the University of Hawaii, and LeRoy Laney, currently from First Hawaiian Bank, soon to be from Hawaii Pacific University. The phone number again, 9558821. David McClain, as I was saying, my provocative things about, by golly, we ought to be able to do something about this, you seem to cringe a little bit or at least uh signal that you had something to say.
[00:14:45] David McClain: Well, one thing I'd like to add Randy is is that um we don't know what the capital costs are uh associated with these refineries. These are rather small refineries, Chevron 55,000 barrels a day, uh BHP, which has just been sold, 95,000 barrels a day. Um and as a result, we don't know because we don't know their capital costs, we don't know the unit cost that would be associated. These may just be refineries that are too small to have the kind of cost that would exist on the mainland.
[00:15:10] David McClain: Uh I go back to our article this morning in which we refer to to Walmart and the way it made its uh its money in in by going into a lot of small Midwestern towns and and being the only person in town, the market just wasn't big enough to to handle more than one. Um, it may just be our bad luck to live in Hays, Kansas when it comes to gasoline.
[00:15:29] Randall Roth: That's close to my hometown, by the way.
[00:15:30] David McClain: I know.
[00:15:31] Randall Roth: Um, but what I guess I'm I'm hearing are a couple of things and number one, maybe it's the size of our market that is the source of our problems as opposed to the evilness of the folks who are pricing various products out there. Uh, and number two, maybe related to number one, related to the size of our market, there are inefficiencies in the production of gas and perhaps some other things in Hawaii. You were talking about the capacity of these two refineries. The impression I get is that they're not as as as efficient as larger refineries on the mainland might be and that's a a factor in the pricing.
[00:16:08] Leroy Laney: Well, I wouldn't use the word efficiency, I would just use the word they're not as large. The scale economies are just simply not there. They're doing the best they can, probably, given their size, but the market is just not large enough to support the the the mega-refineries that we would have on the mainland.
[00:16:21] Randall Roth: So their production cost per gallon or whatever would be high not because they're not doing a good job, Right. Right. but because of the efficiencies that are built into that type of production.
[00:16:32] Leroy Laney: This has to do with the structure of the industry. If you're talking about an oil refinery, that obviously is a high fixed cost industry. Now, if you're only producing uh uh a certain number of barrels uh, and if you could do double that, you could spread those fixed cost over a much larger range of production, then your cost per unit would be lower. That doesn't mean that you're necessarily going to price in line with that cost, but it means that you could price in line with that cost and still make some money and stay in business.
[00:17:02] Randall Roth: Okay. Well, I've got a feeling we might have touched a nerve or two because our phone lines lit up like a Christmas tree and so we're going to go to some callers. Francis in Kapolei. Good morning, Francis.
[00:17:13] Speaker 1: Yes, I uh would like to ask the panel, is there any possibility of boycotting the products of one refinery for a given period of time?
[00:17:21] Randall Roth: Okay, and and Francis, I'm going to ask them to answer that particular question, but let me ask a a broader question. Uh, okay, we don't have price competition, uh the price of gas is is much higher here than than elsewhere. What can we do about it? And obviously, Francis's question gets into one possibility, but let me ask first the more general question, and then we'll work toward Francis's specific question. What can we do about this? Are are we just over a barrel so to speak, and we've got to put up with it, or are there some responses from the community, LeRoy Laney?
[00:17:53] Leroy Laney: Well, you know, you you could boycott one uh producer. If you did that in a uh two firm industry, then you would be giving a monopoly position to the other one. To an extent, I think that uh we're not exactly over the barrel, but we do have to take, I mean, if as long as we've got cars that have internal combustions engines and we we have gasoline that drives those engines, uh then the the demand is relatively inelastic. Now, let me just quickly explain what I mean by that. The the extent to which output uh, I mean, the that consumption varies with with respect to price is less with an inelastic demand.
[00:18:32] Leroy Laney: In Hawaii, that's we probably have a higher inelasticity of demand, and the reason for that you if you just think about it, what do we do with cars in Hawaii? We drive them back and forth to work, mainly. We're not going to uh put the kids in the car if we live in Texas and drive to the Colorado Rockies for a vacation when the price of oil falls. We can't get any further than the North Shore or maybe a Kapolei or someplace.
[00:18:54] Randall Roth: So we're going to use a certain amount of gas whether it's priced high or priced low, that the amount of gas, so to speak, and we've got to put up with it, or are there some responses from the community?
[00:19:00] Ted Klaus: the fuel that we consume isn't going to vary too much. If if we we've got to get to work and the only we could always ride the bus, but we don't have rapid transit. The only way we can do it is to drive over the Koolaus or come in from the Ewa plain or from Hawaii Kai or whatever. If it cost me $2 a gallon to fill up my car, I'm going to do that. I would much rather it be $1 a gallon, but I'm going to consume about the same amount of gas.
[00:19:22] Speaker 2: And that's called price inelasticity, and what it means is the producer has a strong incentive to keep prices high and to compete on a service level or some other level as opposed to competing on a price level.
[00:19:33] Ted Klaus: Often you find that. Yes. But not necessarily. I mean in the agricultural business, of course, that we demand for food is really inelastic, and yet we have perfect competition in agriculture. So it it's not that's not the the whole story. I think what we need to do to address uh Francis's question uh and and to improve the competitiveness of the industry is two things. First, we need to have better information. We need to shine the bright light of information on what's what the practices are in the industry.
[00:19:55] Speaker 2: Kind of like this show. Kind of like this show, I suppose.
[00:19:58] Ted Klaus: Uh, but maybe going beyond this show to getting some hard data on uh on what costs are for the two producers in the industry.
[00:20:05] Speaker 2: And that's what Ted Klaus and the Attorney General's office is all about, on behalf of the people trying to find out exactly what's going on so that if action can and should be taken, it will be taken.
[00:20:14] Ted Klaus: Exactly. The second thing we need to do, and it's a point that Leroy and I made in the article at the end, is we need to encourage entry into the industry. We need to make it as easy as possible for competitors to get into the industry. It's great that we're having one producer importing gasoline into the islands now. That kind of uh activity can be disciplined for the existing competitors and it's something we ought to encourage where we can.
[00:20:34] Speaker 2: And and I think what you're referring to, Aloha is is shipping in gas as opposed to buying gas that's been refined in Hawaii. And and that is a moderating factor so far as the ability of the producers to price gas where they want to price it.
[00:20:49] Ted Klaus: Well, it can be because uh price competition is all about alternatives, and if you broaden the uh potential sources of supply, it can be. Now, if I'm Aloha at the moment, I'm kind of happy probably that this price umbrella is there that I can sit under because prices have been kept up high. I can buy gas very cheaply on the mainland, I can bring it in here and make some nice money for a few weeks.
[00:21:08] Speaker 2: But if Aloha tries to exploit that too much, then Chevron and BHP presumably will say, hey, enough is enough, and they'll bring down the price enough to where uh Aloha no longer has that incentive.
[00:21:19] Ted Klaus: And that gets to the that's how it's supposed to work.
[00:21:23] Speaker 2: Okay, let me go back to Francis. Francis, uh you asked the question, was it answered to your satisfaction or do you want to talk about it a little bit more?
[00:21:30] Speaker 3: Oh, uh I one thing I want to say, I I would accept these economists position, but I still have that a market feeling that uh something could be done uh in the sense of uh boycotting one for a period of time. It might just show them that we're nervous about the whole thing.
[00:21:50] Speaker 2: Okay. Consumer power, right?
[00:21:52] Speaker 3: caused something that would disturb it, uh, rather than just sit back and say nothing can be done.
[00:21:57] Speaker 2: Okay, customer is king, we're the consumers, and if we can be unified and communicate clearly to the producers, then they're going to listen.
[00:22:04] Speaker 3: That sounds right, Jim.
[00:22:06] Speaker 2: Okay. Thank you, Francis. We go to, I think it's Davira from from from. Davira?
[00:22:14] Speaker 4: I have to say I agree with Francis um quite emphatically. Um I'm I ride the bus. I don't own a car right now. It's too expensive to own a car in Hawaii. We're talking high insurance rates, the cost of gasoline is rather high.
[00:22:31] Speaker 4: We have a reasonably efficient bus system. It it's a little lackadaisical out here in the country, but I've been involved in consumer boycotts. I believe that it's that one of our best alternatives is not to boycott just one company but to work together to uh car pool and develop efficient communication between consumers and let these people know that they can't keep a hold of us quite so firmly as they have in the past.
[00:22:57] Speaker 2: They don't have us over a barrel after all, right? We have we do have choices. It's just a matter of getting on the bus or or walking or something other than driving the car.
[00:23:07] Speaker 4: Well, there historically, there is so much that's been done, um, well, I spent many years in California and that for years without eating grapes and we didn't eat lettuce. And there were a lot of very efficient boycotts. Part of the problem is is that folks in Hawaii have to work very hard. We all work long hours, we have long commute. And it's difficult for us to organize.
[00:23:30] Speaker 4: But it it's patently obvious that if we don't take some kind of action, we're going to continue to end up with these companies. There are only one or two of them. I mean, for example, we have one phone company and we need to let them know that they can't take advantage of us any longer.
[00:23:46] Speaker 2: Okay, Davira, thank you for your call. Um David McClain, let me ask a question it to uh Davira's statement. Uh why don't we just go to the legislature? I mean, we make we the people through our representatives make the rules. Why don't we go to the legislature and just make those oil companies and those banks and those shippers, etcetera, etcetera, those areas of the economy where we think there really isn't price competition because of inelasticity of demand and because of the size of our market, etcetera. Again, this is all explainable. Why don't we through our elected representatives force them to charge less, force them to compete on a price level?
[00:24:26] Ted Klaus: We actually do that, Randy, in um industries in which we have natural monopolies where it's efficient for only one firm to serve the market. And we have a Public Utilities Commission um that is charged with doing that on on behalf of the citizens. In these industries where you have more than one competitor, um we don't have any basis specifically for doing that, and if we push too hard on that issue, um we just find companies leaving uh being unwilling to serve the islands.
[00:24:50] Ted Klaus: Uh so I think a better course is to go through the Attorney General's office and and through the legislature and get more information here and I think in last year's um legislative session, uh the legislature passed a law that uh uh requires uh the refining companies to disclose some information on their costs and pricing. That's a great idea. Uh it's not it doesn't force them to leave the state. It's not punitive. It doesn't control their prices, but it sheds uh a little light on the subject, and I I think that's that's that information has enormous power.
[00:25:20] Ted Klaus: I'm I'm sympathetic to the idea of consumer boycotts and and uh like our caller uh I went without eating grapes for a time as well uh a few years ago. But uh the distinction here is with grapes there are other food alternatives that you that you have to satisfy your nutrition needs. Uh we don't have many other alternatives here in Hawaii with regard to our transportation needs.
[00:25:41] Speaker 2: You know, as I was listening that, I was thinking of a couple of things. One is a statement you and Leroy made in your article in this morning's advertiser that uh heavy-handed government regulation has been productive over the years, that it creates a reputation that the rules will be changed in midstream and that government will come in and and try to interfere with the way things might might normally function and and and your point, I think is that that really shoots ourselves in the foot, that that's not uh a good thing. And the other thing that I'm thinking as as I listen to that is that uh businesses don't want to be regulated.
[00:26:13] Speaker 2: And so, maybe a reason and I think you said this in your article that there are two of so many things is that maybe any one producer which has or could have a natural monopoly in a in a market this size, they really want to have a worthy competitor to avoid regulation, Leroy Laney?
[00:26:31] Ted Klaus: It's it's uh nice to have somebody around because it does take only two to make a horse race. Now, you might not think it's a very efficient horse race and there might be collusion among the jockeys, but but it's some kind of competition, because if you drive, if if David and I are in competition and he's the CEO of one firm and I'm the only other CEO that's competing with him, I want him around because if I drive him out of business, he's gone and I'm regulated.
[00:26:57] Ted Klaus: So we're both worse off. So a stable equilibrium is to have at least two. Now, maybe sometimes you might have three, but three complicates the the picture a little bit.
[00:27:05] Speaker 2: So now there are two reasons why we don't have much price competition. One is this price inelasticity that you're talking about, and the other one is you're afraid you might win the the battle, push your competitor out of business, and you end up being regulated.
[00:27:19] Ted Klaus: I want to piggyback on on one thing that David said and you were suggesting it also. We shouldn't forget in in saying that uh you know, regulation might be a solution to this. That uh that regulation, a system of regulation also has some inefficiencies that are introduced. You have often in regulated industries revolving doors between the executives of that industry and the bureaucrats in the public sector who regulate them. Uh there's some evidence that regulated industries will overinvest in capital because their their regulated rate of return is the return on assets, so what they do is they they overexpand their capital stock relative to the other inputs to production and that's a misallocation of resources.
[00:27:58] Speaker 2: They get rewarded for being inefficient.
[00:28:00] Ted Klaus: Exactly. So so you've got this capture effect, this this umbrella effect that occurs. We can think of economies uh outside the United States in the world today that are that are not very efficient that that that have too much of a uh a nexus between the public sector and the private sector, and we don't necessarily want to emulate that. That's not a road I I think we want to go down.
[00:28:22] Speaker 2: Okay, you're listening to the Price of Paradise radio show. My name is Randy Roth, I'm here with Leroy Laney and David McLain. We're talking about price competition in Hawaii, and uh the number is 955-8821, and our next caller is Sandy from Hawaii Kai. Good morning, Sandy.
[00:28:38] Speaker 3: Good morning. Um I have three things that really have to do with the state causing some of this problem which I've never read anything about. And it seems like it's a natural to focus our anger at the refineries but really, I think the state has some something to do with this as well. In one instance, I never ever hear how much tax we pay per gallon of gas, but I understand it's very high compared to other states like Utah, for example.
[00:29:10] Speaker 2: It's it's I I have one of our listeners who knew this was our topic faxed in some information to me the other day, and it's the second highest in the country that in Hartford, Connecticut, they actually have uh total taxes a little bit higher than in Hawaii, but with that one exception, we're much higher than almost every other market and it's and it's right around, is it 55 cents a gallon?
[00:29:33] Ted Klaus: I think 55 cents a gallon.
[00:29:34] Speaker 2: Right, that's real close uh Sandy to what it is here in Hawaii. So that's about a third of uh the pump price.
[00:34:05] Speaker 3: 20 we're then a third and then
[00:34:07] Speaker 2: Well, that's a good point.
[00:34:08] Speaker 3: And so the state collects a great deal of money from every gallon of gas that we use. Second situation is caused because the legislature, as I understand, limits the number of retail outlets, the number of gas stations. So BHP, for example, is prohibited from putting in more gas stations, which would allow them to sell gas at a lesser price, so because they would have perhaps a larger share of the marketplace and the retail side. So there's a situation where once again the state interferes with free market, as it were.
[00:34:43] Speaker 2: Okay.
[00:34:44] Speaker 3: Um a third situation happened when this was some time ago, but the a lease came up that expired for a pier facility, and um BHP had that particular pier, and so the state refused to renew it, and BHP had had a lot of money invested in that pier, and so they had to go to a competitor and pay money to have the gas terminals and so forth or the oil terminals and so forth.
[00:35:10] Speaker 3: They made all of those arrangements, eventually the state's economy got bad, and then apparently then they were willing once again to release the pier instead of do whatever grand schemes they had for it, but at that point, they wanted such a high price that it it wasn't price competitive, you know, it wasn't smart for BHP to once again lease that particular pier. And additionally, when we talk about importing oil that's really cheap from North Korea, if it becomes price competitive, then BHP and Chevron would just export their oil elsewhere.
[00:35:44] Speaker 2: Sandy, you sound to me like someone who knows what she's talking about. Um some of the topics you raise, and I guess all of them at least indirectly go to state action or or inaction. Let me go back to our our Deputy Attorney General, uh Ted Klaus, who's been with us. Behind Ted, can you hear me?
[00:36:02] Ted Klaus: Yes, I'm still here.
[00:36:03] Speaker 2: You are uh Deputy Attorney General, and and one of your responsibilities is to watch what's going on in this area and try to take appropriate action on behalf of the consumers. Did you hear Sandy's comments just now?
[00:36:14] Ted Klaus: Yes, I did.
[00:36:16] Speaker 2: What are your uh what are your thoughts?
[00:36:18] Ted Klaus: Um taxation is um uh of course a a matter of legislative discretion, how the legislature thinks it's best to allocate the uh financial burden of government. Um the point about uh the legislature um taking action to limit the ability of companies to the oil companies to open company stations is a little bit more complicated. Uh the argument on the other side is that you need to keep the independent dealers uh present in the market in order to um uh avoid concentration on the retail level anymore than it's already controlled by the oil companies.
[00:36:59] Speaker 2: So you're you're limiting competition in the short run so that you can have more competition in the long run.
[00:37:03] Ted Klaus: Yes. Um um I think that that uh Sandy has a a good point about the the leasing of terminals. However, um when BHP was able to uh lease the state term the the the stateland for its terminal, it didn't seem to help competition any. Um there are a number of other things uh that we can do besides those mentioned by Sandy and if this is a good time to mention some of them, I will.
[00:37:32] Speaker 2: Just real real briefly, Ted.
[00:37:34] Ted Klaus: Pardon me?
[00:37:34] Speaker 2: Real briefly.
[00:37:35] Ted Klaus: Okay. One of the things that the legislature could do is to make tacit collusion an unfair practice for the purpose of recovering overcharges if they could be calculated. Another is to um um outlaw exchange agreements, whether that would be effective or not uh has to be studied of course. Another possibility is a state-owned oil and gas terminal, uh which
[00:38:00] Speaker 1: keep oil um and gasoline not only for emergency purposes, but also to exercise some discipline uh on against the uh existing players. And then, uh there's the possibility of of um enacting a requirement that the oil companies share their terminals with other people, that is, uh to uh enact a requirement of public terminaling. And finally, of course, we can all shop better.
[00:38:29] Speaker 2: Okay. Uh, Ted, thank you. Let me get a quick reaction to one or more of the points that Ted just made and then I'm going to come back to Sandy and then we're going to going to move on to the other callers. Uh, David McClain, I see you taking notes over here. Um, I don't want you to talk about everything because we've got callers waiting, but one or two things that Ted just said that you might want to comment on.
[00:38:50] David McClain: Generally, I think uh sharing information is is better than uh most of the things that have been suggested. These are a bit heavy-handed. A state-owned terminal, I can't imagine that making any lot of sense. Uh, outlawing exchange agreements reduces flexibility of the marketplace. Making tacit collusion unfair is an interesting one. I alluded to it a bit before. Um, the burden of proof is hard though, and it it's an invitation to litigation. These are people with deep pockets. Shopping better I like a lot.
[00:39:15] Speaker 2: Okay. Leroy, any quick thoughts?
[00:39:16] Leroy Laney: Uh just on the uh stock piling uh suggestion that Ted mentioned, uh the stock piling is often, but by the public sector is often mentioned as a uh as a means to not just provide an emergency supply but to provide some stability to the market. But I don't think we should forget that this also requires some inventory carrying costs and some resource expense by government. That's often suggested in in commodity markets as well as energy, that that we have that kind of thing and and the track record on that is kind of spotty.
[00:39:43] Speaker 2: Okay. Sandy, real quickly, a a response from you and then we'll move on.
[00:39:47] Caller: Okay. Well, I obviously, there's not much we can do um about the state regulations in a very short term, but I just think that some blame should lay back with them. And one other thought comes to mind is knowing people with refinery states with refineries like Texas where things happen, and people there are very supportive of that particular industry. And here, they there's a sulfur emission and all sorts of regulations come down on the refineries and people are very up in arms and then they go in and they're fined and then there's all kinds of millions of dollars worth of new safety features that they have to put in.
[00:40:27] Caller: For something that probably doesn't do any harm whatsoever, and unfortunately just happens maybe to happen when the winds aren't blowing. And so, I'm just saying that we aren't very supportive on the on the side that produces this gas as a community, and yet we're really angry when the prices are are higher and and it's very much possibly a part of our state and the way they do things. And I think that that probably goes to other industries in in general too, the banking industry, for example, why did Bank of America leave Hawaii?
[00:41:02] Speaker 2: I've got a feeling, Sandy, you could uh talk for the rest of the hour and say, you know, really good things. But I've I've got some folks that have been waiting.
[00:41:08] Caller: Thank you so much.
[00:41:10] Speaker 2: Thank you, Sandy. Um, you know, as I was listening to Sandy's last comment, I had a caller a couple days ago um called me at the office and was saying and and not complaining about environmental regulation in Hawaii, saying that that the environment is our our greatest asset, and we need to air if at all on the side of overprotection, etc.
[00:41:29] Speaker 2: But they were commenting that um that one of the reasons, in addition to high taxes and price inelasticity, but one of the reasons for the high price of gasoline in Hawaii is that we do demand a lot more of producers and distri and distributors and ref and dealers in Hawaii so far as environmental protection is concerned, than in any other place. And I don't know, and I they didn't put it into numbers, but it kind of rang true to me.
[00:41:53] Leroy Laney: Well, you you can't have your cake and eat it, too. I mean, a clean environment does cost something.
[00:41:59] Speaker 2: Okay. Well, we're going to move on. Um, Susie our producer, she can get uh our Chevron executive, that'd be great. We'll go to Royal in Manoa. Good morning, Royal.
[00:42:08] Caller: Good morning, Randy. You know, some of us uh drive uh diesel cars and trucks and in 1978 when I bought my first diesel automobile, diesel was the uh cheapest uh fuel to use in an automobile. Uh now, um I'm paying $1.85 to $1.88 a gallon, and I understand, you know, diesel is cheaper to refine than uh gasoline, so uh what's happening here?
[00:42:33] Speaker 2: Okay. Well, I tell you what, let's take that as a a as a rhetorical question um because our experts in the studio aren't um uh oil executives and don't get into those sorts of pricing decisions. But we are going to have uh an oil executive on the line in in just a moment and so um we'll address that when we've got him. We'll go to Lane from Kailua. Good morning, Lane.
[00:43:07] Caller: Hello.
[00:43:11] Speaker 2: Yes, you're on the air.
[00:43:12] Caller: Hi, um, I have a question and a comment. I'm a local businessman who does business here in Hawaii and also in the the United States, which is part of us anyway. But I've been in Kansas. In Kansas, I've seen the gas there which I purchased was like about 98 cents. In Las Vegas, it runs about 99 cents. Then when I come to Oahu, I pay 159 or 160. And then when I go to Kauai, it's $1.89 for the same gas. So, I'd like to know why so much of discrepancy in prices there. And as a comment, um, I heard either Leroy or David say they're from Kansas somewhere.
[00:43:43] Speaker 2: Uh well, I I am. And David went to the University of Kansas uh too, so he has a connection.
[00:43:49] Caller: Okay. One of my main offices that I work for, work with as a wholesaler, is in Kansas, and they have a Walmart there. And I've been in that Walmart there, and their prices are similar to Hawaii, but it may be a few pennies difference higher, maybe uh just a few pennies or so. And Walmart supports local vendors here in Hawaii and will buy from us locally if we supply the same or similar merchandise. So in this case what I'm trying to relate to is big business, or big box stores, will support Hawaii as its own as growth for itself, as well as for the growth in Hawaii, to support that.
[00:44:23] Caller: So why can't the oil refineries do the same?
[00:44:27] Speaker 2: Uh appreciate your call, Lane. Um, we've got on the line now and and we should have had uh this fellow earlier in the show and I made a mistake on uh the number that we've been trying to use. But Joe Bob Riley is a region manager for Chevron Products Company. Uh as such, he's in charge of marketing for Chevron Oil here in Hawaii. Joe Bob, can you hear me?
[00:44:49] Joe Bob Riley: Joe Bob, can you hear me? Yes, I can.
[00:44:51] Speaker 2: All right, and I apologize. I was supposed to call you uh 40 minutes ago and I had the main number at uh at Chevron and uh so it was my goof, but good morning.
[00:45:00] Joe Bob Riley: Good morning to you.
[00:45:01] Speaker 2: We've been talking about really two things that are are certainly closely related. One is the the price of gasoline in Hawaii and the fact that it's not just a lot higher than it is just about any other place in the United States, but that it it didn't come down over the last few months when it was coming down in in most markets uh around the country together with the decline in the in the price of of crude oil. But really our focus this morning has been on on the broader question of of why there isn't more price competition in Hawaii.
[00:45:32] Speaker 2: Um, I want to get your thoughts on on all of this just generally, but but a couple real quick questions. First of all, when you price your product in Hawaii, you bring in oil, you produce gasoline and a whole bunch of of other products. Do you decide what to charge based on what it costs you to produce it or is there some other mechanism that is used to determine the the price of a gallon of gasoline, for example?
[00:45:56] Joe Bob Riley: Uh, well, on uh gasoline pricing, uh as you as you as you correctly point out, um there are a lot of of uh products that are made from a from a barrel of uh of crude oil, and we do not um set prices based on on um the cost of of raw materials. Uh gasoline prices are set by supply and demand in the marketplace, and the forces of supply and and demand in the marketplace.
[00:46:22] Speaker 2: Joe Bob, can can I and and I know this is a very negative way to to say it, but but is that in effect telling us that that producers, including oil companies, will charge what the market will bear?
[00:46:33] Joe Bob Riley: Well, I I think that's um um one way of putting it certainly, uh but it but the market will does dictate where the prices are, and um that that also not only when they're going up, but when they're going down as well.
[00:46:48] Speaker 2: I see.
[00:46:49] Joe Bob Riley: So uh certainly one way to put it, but if if you take a look at at gasoline, um you know, if you put a barrel of crude in into a refinery, you get, you know, lots of different products that come out of it. I think the the thing that we need to make sure people understand is that it's not a barrel for barrel. Gasoline, put in one barrel of gas uh of crude and one barrel gasoline comes out.
[00:47:08] Speaker 2: So because of supply and demand in the market, you might be making big profits on gasoline at any one point in time, but maybe losing money on jet fuel or some other product.
[00:47:18] Joe Bob Riley: That's exactly right. And and and for example, here in Hawaii, um for every 10 gallons of crude oil we put in our barber's oil uh Barber's Point Refinery, we get about three gallons of gasoline, but we also get things like naphtha, we get jet fuel, we get diesel fuel, we get fuel oil, and in fact, we even get asphalt. And so the products are priced in in different markets and and different market prices for these products and and they all move independently of each other.
[00:47:45] Speaker 2: Okay. Let let me ask you a second question. I know you and I have talked by phone over the last couple of days, and and a couple of times you've you've suggested that Chevron has a thin margin, which I I think translates into um a suggestion that that the product, the profits are not excessive, that that they're they're reasonable, modest profits. And yet the price of gas is much higher here than elsewhere. I know it's more complicated than this, but in part does that suggest that the production cost of gasoline is much higher here than it is elsewhere?
[00:48:17] Joe Bob Riley: Well, uh and I think I think before we what we move into that, maybe it's it's worthwhile that we spend a little bit of time talking about and and and talking about the marketplace and and um in making drawing comparisons. And I I think that's a a bigger issue, and then if I could, we could it we could come back to that that issue. And I think it's important though that we spend a little bit more time on on the issue of gasoline prices and why they move differently here uh than they do say in other areas.
[00:48:45] Joe Bob Riley: And I think you know, obviously, gasoline is something that gets lots of of of um of attention from the public because it's something that people have to use, obviously, and and you know, our price is right out there for everybody to see, which which naturally attracts some attention. But the the key issue is that trying to draw comparison between Hawaii gasoline prices and say crude prices or between Hawaii's gasoline prices and gasoline prices in in say California or the mainland is just inherently, it's it's misleading and and part of it's for some of the reasons that you just brought up.
[00:49:18] Joe Bob Riley: But if you if you take a look at at a time period, I think that's the other issue that you need to take a look at. For every example that you can come up that's negative for Hawaii, you can also bring up some that are that are positive. For example, if you look at at prices just going back a one year ago from from June 1996 to uh uh to uh June of 1997, a little more than a year ago on crude prices, you know, Alaska North Slope crude went up about 15 cents per gallon or about $6.30 a barrel.
[00:49:52] Joe Bob Riley: But gasoline prices during that same period here in Hawaii actually went down about 4 cents per gallon. From December 93 through July of 1994, ANS or Alaska North Slope crude went up 57%, but in Honolulu the the wholesale prices went up only about 2%.
[00:50:12] Speaker 2: Joe Bob, let me let me interrupt you just a minute and ask uh David McClain and Leroy Laney in the studio. One of the things in their article this morning that they were saying was that the the good side, if you will, it's kind of a there's a bad side, which is higher prices here than elsewhere, but a good side of our situation in Hawaii with the the the two major um producers in a number of areas was price stability. Is is that what we're hearing from Joe Bob, Dave McClain, or or or were you guys writing about something else?
[00:50:44] Speaker 2: Any other comments you have based on on what Joe Bob Riley has said thus far?
[00:50:48] David McClain: Well, I want to get to that production cost question, but let me say first that uh he he he is certainly accurate in picking those prices at those times. The times I picked were different times. Uh I I I think it is really not appropriate to say that it's misleading to compare Hawaii to the mainland. The the business of refining, as as I'm sure he well knows, is is very similar on the mainland as it is here in the sense that you get lots of different products out of a barrel of crude, some of which are gasoline. And yet on the mainland the prices come down substantially, in Hawaii it has not.
[00:51:21] David McClain: I I think we still need to understand why that is. It may have to do with that production cost issue.
[00:51:25] Speaker 2: And and in your article this morning when you used the expression stability, uh is that part of what Joe Bob's talking about or or were you talking about something else?
[00:51:34] David McClain: He's talking about stability as as a benefit to to consumers in the market and it certainly can be. Uh I was talking about stability as a characteristic of uh a duopolistic or oligopolistic industries. Um, there are some good behavioral reasons why prices just don't move around, uh not related to providing the consumer any particular benefit.
[00:51:50] Speaker 2: But that's not necessarily explaining what's going on with gas prices in Hawaii.
[00:51:54] David McClain: Uh that's correct.
[00:51:55] Leroy Laney: Well, stability of prices, other things equal is a good thing, but we also have to remember that prices are a signals and that we can probably take a little volatility in prices. I mean economies do and and there are supposed to be signals about relative scarcity of resources. I I would agree, however, on on the industry's position that that we are likely to hear the the loudest outcry when price here in Hawaii when prices are higher here relative to the mainland.
[00:52:20] Leroy Laney: You probably can go back and I don't know the data well enough to to do this, but but you can go back to time periods when they were moving in opposite directions and find that they that they were falling here, but rising elsewhere.
[00:52:31] Speaker 2: Uh Joe Bob, and for people who just tuned in, Joe Bob Riley is in charge of marketing for Chevron Oil company. Um, Joe Bob, any additional thoughts that you'd like to share with this? We're running a little bit low on time, and I've got some people who have been waiting on the uh the phone for a long time. But any additional thoughts you'd like to share on our topic?
[00:52:48] Joe Bob Riley: Well, uh yeah, I do. I would like to just uh again point out that that um um on two small two brief issues here and if I could uh with regard to to prices the finished product gasoline prices on the street moving differently than the West Coast. The fact is that that they have been coming down faster in uh California, but again, I think it's a it's a reflection of that marketplace versus um versus the uh the Hawaii market.
[00:53:19] Joe Bob Riley: And and and again if you just look back when you're on finished product prices, rather than comparing it to crude, if if you look at what's taken place, last the first nine months of last year, prices in in California moved differently in Southern California than they did in Northern California. In fact, they went up 18 cents a gallon in San Francisco and went up 27 cents a gallon in for that 9-month period in Los Angeles. If you look at Hawaii, our wholesale price went up between 1 and 3 cents a gallon.
[00:53:46] Joe Bob Riley: So, it's just clearly a different marketplace, and I think the professors there can can can can um, you know, give you better reasons than I can why marketplaces uh move differently and and the factors, but uh if you look at it I I don't think that it's necessarily tied to to production cost and those types of things. I certainly those are factors uh one of many variables that that uh that um uh cause prices to move either up or down, but it's certainly not the the sole purpose for it.
[00:54:16] Joe Bob Riley: There's a whole myriad of reasons and at the end of the day, it it truly is uh it truly is the marketplace and the dynamics of the market that cause those prices to move.
[00:54:24] Speaker 2: Okay. Joe Bob, I really want to thank you for being available to us this morning. I I talk to a number of people in the oil business with the the various companies and dealers and whatnot. And and your side of this issue is not the popular side, and you're um I was going to say one of the few, you were the only one that I talked to who was willing to engage in this public conversation about this issue and and I'm a big believer that we're all going to be better off if if we talk about this, listen to one another about it. And I very much appreciate your participating this morning.
[00:54:55] Joe Bob Riley: I I also thank you for the opportunity. As you say, I am more than willing to uh to to um participate in this forum at any time.
[00:55:02] Speaker 2: Okay. Thank you much.
[00:55:03] Joe Bob Riley: Thank you very much.
[00:55:04] Speaker 2: Okay. You're listening to the Price of Paradise radio show.
[00:57:00] Joe Bob Riley: when you get into the bookkeeping and how how to determine what a gallon of gas costs at the pump. Uh, it it should be relatively simple here because they're buying one product and refining and as Joe Bob pointed out, they're throwing off a number of products. People tend to think whatever they use at in their car that that's the product. It's not. But that also points to the size of this market and we need to be thinking that it's not just the folks driving cars and the buses.
[00:57:29] Joe Bob Riley: I assume that Pearl Harbor is buying diesel. I assume that the airlines are buying aircraft aviation fuel, the point was made that the state is buying asphalt from these guys. So all of those prices we need to be looking at all of those things, not just the price of gas at the pump.
[00:57:51] Speaker 1: Shell we're running out of time. Give me the bottom line.
[00:57:53] Joe Bob Riley: My final point is my final point is everybody that's screaming smaller government, less regulation. This is a prime example of what you get when big corporations pretty well non-competitive are out there by themselves. Thanks.
[00:58:08] Speaker 1: Okay, thank you much, Shell. David from Maui, you've got just a little bit of time to tell us what's on your mind.
[00:58:15] Caller: Aloha. Aloha. I'd like to expand the scope of this conversation just a little. Um, I'd like to first of all suggest that we could have a different source of our fuel. Let me guess. Well, specifically biomass, but it just so happens that hemp is the greatest producer of the biomass substance. Um, but what I would like to ask you, personally Randy, is do you have any historical reference to the motivation of the original Hemp Tax Act that happened in 1937?
[00:58:48] Speaker 1: Uh, I don't, but I'll tell you what, since we're running out of time and that's not right on point. I'm going to take that as a rhetorical question and move on. David I, I appreciate your call, I really do and if we, we weren't under the gun time-wise we'd talk a little bit about that, but we do have to move on.
[00:59:03] Caller: Well, this is just, this is a real, real, and but isn't. Oh. Let's go to Alfred from the Big Island, and I apologize to David and, and and anyone who's offended by my rudeness, but, but we just have to keep moving if we're going to hear from everybody before the time's up. Alfred from the Big Island, good morning.
[00:59:20] Caller: Good morning. I just thought that you'd like to know that Costco is going to be entering into the competition. I was talking to an employee here on the Big Island, and he said that they are in the process of getting the permits to sell gasoline, and it'll be about 30 or 40 cents less a gallon. So there's going to be a little more competition, I just wanted to interject that into your conversation.
[00:59:41] Speaker 1: Okay. I appreciate that. That's interesting information. We're down to the last two and a half minutes and I'm here with Leroy Laney, who's currently senior vice president and chief economist at First Hawaiian Bank, but later this year he's going to become full-time faculty member at Hawaii Pacific University. And also David McLean, who is the distinguished professor of Business Enterprise and Financial Economics and Institutions at the University of Hawaii, Manoa. Two distinguished economists, you've got about a minute each left to tell us what all of this means. Leroy Laney.
[01:00:10] Leroy Laney: Randy, I want to use my time very quickly just to make one point that hasn't been made here, and it's it's kind of we and David and I didn't make it in the article in the Advertiser this morning. But one it's kind of a macroeconomic point, it doesn't have to do with market structure. But the price of paradise when you take everything into account oil and gas and everything else that we consume here is coming down, that gap is closing. And that should be good news to consumers in Hawaii. One of the things that's helped it has been the retail revolution and entry that has come in there and it's interesting to know that Costco is is coming into the market and and will be another competitor there. Um, but but our consumer price index in Honolulu when you take everything into account is lower than we've, then it's been since we've been keeping numbers on it.
[01:00:52] Speaker 1: So the good news doesn't get as much space in the newspaper and time on the TV stations as the bad news, and while we're focused on something like the high price of gas, the fact that it's staying up, and the differential is greater, that that's maybe not the real story?
[01:01:05] Leroy Laney: The price is closing. That gap is closing. Now, inflation on the mainland is low, but a half of 1% was the most recent inflation number that we got in Honolulu on the Consumer Price Index. And when you take into account some biases in that number, we're we're probably in a mild state of deflation here in Hawaii.
[01:01:21] Speaker 1: David McLean, you've got 59 seconds.
[01:01:23] David McClain: I have one sentence and three numbers. The sentence is from our article today. Even if entry in the market is easy, the number of firms in a market in the long run reflects a balance between the size of the market compared with the optimum size of the firm and its production costs. The three numbers are about $1.60 for gas in Hawaii, about a dollar, for gas on the mainland. And a retired PRI executive said in a statement before the legislature, a few days ago, that he thought a reasonable price in Hawaii, allowing for a fair rate of return would be $1.25.
[01:01:54] Speaker 1: Okay. Thank you very much. Um, our sponsors the Hawaii Community Foundation. Our producer is Susie Roth. The production chief is Jeff Alardi. Next week, UH president Kenneth Mortimer will speak out and respond to your questions. This is your chance to go one-on-one with the president, sharing your ideas and concerns and finding out exactly where he stands on issues of importance related to the University of Hawaii. You've been listening to the Price of Paradise Radio Show. I'm Randy Roth. Aloha.
[01:01:56] Speaker 1: Our sponsor is the Hawaii Community Foundation. Our producer is Susie Roth, the production chief is Jeff Alardi.
[01:02:03] Speaker 1: Next week, UH president Kenneth Mortimer will speak out and respond to your questions.
[01:02:08] Speaker 1: This is your chance to go one-on-one with the president, sharing your ideas and concerns and finding out exactly where he stands on issues of importance related to the University of Hawaii.
[01:02:18] Speaker 1: You've been listening to the Price of Paradise radio show. I'm Randy Roth. Aloha.