Economics of Domestic Marketing

ABOUT a year ago, I attempted in a general way to trace the origin and development of some of the marketing problems of the petroleum industry, and to describe certain trends which it then seemed possible to foresee. To summarize briefly, it was pointed out that the consumption of gasoline, after increasing for more than a decade at an almost unbelievable rate, was slowing down, but that the two factors which determined the supply of gasoline-namely, the production of crude oil and the percentage of gasoline derived therefrom-were tending steadily to mount. It was suggested that, while the increase in gasoline outlets began with and probably was justified at the start by the rapidly increasing demand, long after all reasonable requirements as to number of outlets had been met the number continued to increase-if anything, at a still more rapid rate-because by that time the overproduction of crude had begun to exert an impelling urge upon the owners of that crude to seek assured outlets for it in the form of gasoline. As more and more companies became integrated all the way from crude oil to marketing, there took place an ever-increasing competition among them, not only for the existing outlets but for new ones. The wide margin between wholesale cost and retail price, which is characteristic of the early stages of most new industries, persisted in the oil industry longer. than in most industries, for various reasons. The existence of that wide margin provided in large measure the means of attracting new outlets, for as the gallonage per outlet declined with the increasing number of outlets, competing companies simply offered the dealers a larger part of the total margin. The very nature of competition suggests that such a process would continue until practically all of the available margin was thus given away, and such was clearly the, tendency. It was a system that in turn produced increasing marketing expense per gallon on account of the -diluted gallonage per outlet; this increased expense might seem to have provided a justification for continuing wide margins. Economics, like its parent, nature, however, progresses by mutations and so began to throw out new types of marketers, in the form cf tank-car service stations, cut-price jobbers, and the like-heretics or