What Defines Excessive Profits?

The following example is simplified to prove my point.

Lets look at a mythical company & how record profits can come about.

1st year - 1 item sold - 5 cents profit
2nd year - 2 items sold - 10 cents profit
3rd year - 10 items sold - 50 cents profit

Lets play with the stats.

Year 2 saw a 100% increase, a doubling, in profits, year 3 saw a 500% increase from year 2. Years 2 & 3 saw record profits. Why, increase in sales.

This is a very simplified view of part of the reason a companies profits go up, increased sales.

It is also a part of the reason that oil companies profits have set new records, they are selling more, because we are using more. (There are some other reasons that I will talk about in another post.)

A lot of times when companies have huge increases in sales they lower the price because they can make enough profit without having to charge so much.

4th year - 100 sold - $5 profit

Corporation sees that it is going to see a long range increase in sales so he can lower the profit margin.

5th year he lowers the profit margin to 2.5 cents, he sells 1000 & makes $25 profit. Another record.

Wait a minute, in some states, if he is a gas dealer he now runs into another problem. The law sets a exact profit margin. Why? to prevent unfair pricing.

This recently happened in Wisconsin when a station owner tried to offer a 3 cent discount for those who bought a special card to support a youth hockey group in the area. He also offered a 2 cent senior citizens discount He got threatened by the state's AG with fines for doing so. Wisconsin state law has a minimum mark up requirement for gas. The law supposedly exists to prevent preditory pricing. What it does is prevents competition.

Then the US House just passed H. R. 1252 to deal with oil price gouging. (Again more at another time as I still have to go over it all.) So, if I lower my prices I get in trouble, if I charge what the law requires, I may be breaking another law?

WHAT IS AN EXCESSIVE PROFIT? Esp when I have no control on the amount that that profit is.

Now a short plug for free market economics:

The more I see these pazzo laws that alledgedly protect us doing more harm than good, the more I want scream. & the more I want to see an authentic free market allowed to flourish. The type of market that both Catholic social teaching & The Austrian School of Economics (Check out the Mises Institute website for more info on this.) calls for. As I've said before, see Dr. Thomas E. Woods Jr. 's book The Church and the Market: A Catholic Defense of the Free Economy back's me up on this compatability.

If it is allowed to flourish in the gasoline market I suspect the prices would drop. & more alternative fuels would appear. But that would make sense. Besides, 1 of the big reasons that the state & federal governments wouldn't want lower prices is that their tax revenues would drop. But more about that in the other post I promised. In the meantime your reading assignment, courtesy of the Mises Institute, is: Oil or Tax Gouging by Christopher X. Coyne. Reading it will give you a good idea of where I am heading.