President Biden: The NEW one and only politics thread

The phenomenon is known as rockets and feathers (i.e. prices rise like rockets, fall like feathers). Populist politicians try to pin the phenomenon on collusion, but this happens in competitive markets -- empirically, consumer behavior actually drives the phenomenon to a large degree.

When the price of oil has been stable, but then suddenly increases dramatically, you get the rocket effect in the price of gas. ... the price moves quickly upward. If the price finds some period of equilibrium at the higher level, but then falls, the gasoline prices retreat more slowly. It's true of how prices react in most markets, but people notice it most with gas because the supply and demand factors that determine the price change more often and more dramatically than they do for most other things.

This happens without the mythical collusion people inevitably look for, because of asymmetric shopping behavior by consumers. When the price of gas shoots up, consumers are more apt to go hunting for stations with the lowest prices. But when the price is falling (even from the elevated prices), they tend to be less active about hunting for lower prices. It's almost like, "Oh great, I am paying 4 cents less than I did last week," so they don't go looking for an even lower price. Which partly explains why gas prices drop slower than they did on the way up when oil prices were increasing.