The latest issue of the Yemen Observer has an article that amounts to little more than the paper mocking the government. The headline reads, “Crisis? What crisis? Government still thinks gas situation stable.” The article describes how prices of propane gas tanks, which are used all over the country for cooking among other things, have risen dramatically over the last 5 or 6 months. Prices are hitting 1000 riyals (as opposed to the 500-600 from 6 months ago) and people are waiting in long lines to get the tanks. The vendors blame the government (which provides the gas) and the government is blaming the distributers. The paper seems to be happy assuming that either the incompetent government or greedy distributers are to blame, but doesn’t bother to look into the matter at all.
The article is rather maddening because important details are missing. Are people standing in lines for tanks at 1000 riyals? Or are people avoiding the lines by paying 1000 riyals? The government claims that its price to the vendors has not changed, it is still 400 riyals. So this leads to some interesting conclusions. If people are waiting in line, that means that the gas in under-priced. Surely the combination of prices that are “too high” and waiting in line do not seem to jibe. Queuing is a classic example of underpricing, see the cap on gas prices in the US during the 1970’s as an example. If you want to get rid of the lines, you need to raise the price of the gas. How much do you need to raise it? Just enough so that people do not think that it is worth standing in line for. The only reason to stand in line is if you think that it’s a great deal or you (along with several thousand of your friends) want to consume a lot of it due to the low price. If it is no longer a bargain, or if it is high enough that you cut back on your use, *POOF* no more lines. I have a feeling that the going rate is well below 1000 riyals but that some people are willing to pay that price in order to avoid standing in line. The upside to all of this is that I haven’t heard the annoying CLANG CLANG CLANG of the gas sellers walking through the streets. They bang the tanks with a wrench to announce their presence. I guess that people are now willing to go to them instead of them delivering at a higher price.
And I don’t want to hear any, “But people HAVE to have it, they are forced to pay the higher price so they can cook!” bullshit. Charcoal is cheap. Yes, it is a bigger pain to use, and that is why people prefer using gas, but it is an option. If you can’t afford 1000 riyals for gas (and many people can’t), 50 riyals for a bag of charcoal sounds pretty good. Grills are pretty low tech to make, I really don’t think that it’s beyond anyone to make one…
So do we blame the government or the distributers? It’s possible that the distributers are deliberately keeping supplies low thus forcing up the price. Unless there are only a few distributers, and it’s a distinct possibility, I doubt that they are doing that. It would just be too difficult to organize all of them and keep the price up. Left to their own devices, someone would start discounting to get more business and others would have to follow suit. If there are only a few distributers, the solution is to open up the market and let competition take over. It wouldn’t surprise me if the government has only “allowed,” ( i.e. given) contracts to some cronies of some important bureaucrat. These licenses to make money are very common in these sorts of governments. In any case, I haven’t heard of a glut of propane that is not being bought by suppliers, so I doubt that this is happening in any case.
The important thing to keep in mind is that even with the higher prices, no one is having trouble selling propane. It sounds like that the distributers are trying to sell gas at the going rate. Perhaps they are feeling the heat of consumers’ ire and that is preventing them from charging the actual market clearing price, hence the lines due to the lower price. That rate is determined by the demand of consumers and the supply. The government claims that the supplies have not changed, so that implies that the demand has. That, combined with the falling value of the dollar/riyal might just be all the explanation that is necessary. To misquote another blogger I read a while back, high gas prices are not a crisis, no gas is. If you try to sell gas at below the going rate, you will face long lines and shortages. it is much better to simply raise the price than it is to try to “force” a market to do your bidding. Let people make up their own minds about what to do with the price and let the producers and distributers try to maximize their profits. Usually, I’d say that the government being the supplier would really mess things up, and it might, but the Yemeni government is pretty good at sniffing out revenue streams. While not as good as a for profit company, they’ll approximate one due to the corruption involved and the dire state of the government’s coffers….