The rate of change in the price of gas is rising

In my last post I was a bit surprised by the increased spikeyness in gasoline in what I had dubbed the "new trend" starting around 2001. One way to look at spikeyness is to look at changes in prices over time (in this case, the rate of change from week to week).

This picture is the week to week change for the national average price of a gallon of gasoline from 1994-present. As with the prior two posts, the chart is built using data available at www.eia.gov.

In this chart, data points above zero mean the gas prices went up that week. Data points below zero mean that gas prices went down that week. Data points around zero mean gas prices were largely unchanged that week. With that in mind, some observations:

1. From 1994 to 1998 gas prices were "mostly stable". You can see year over year trends hovering around the zero mark. While large spikes upwards occur, these are eventually offset by more prolonged but lower downward spikes afterwards (prices rise fast, but lower slowly).

2. Peak prices (highest spike points) often occur in April. So, I suppose there's a reason why the urban legend that started me off on this road happened across three Aprils (1997, 2011 and 2012).

3. To my surprise, the new trend I talked about didn't start following the 2001 recession. It began in 1999. Starting in 1999, most of the data points are above zero. This suggests that the price of gas began - and continued - rising.

4. The prolonged downward trends in gas prices are generally associated with recessions (2000-2001 and 2007-2009).

5. Also, to my surprise, the "new trend" isn't linear, it's curvilinear. Beginning in 1999 you hardly ever see prices hovering around the zero mark. There are short stretches of unchanged prices (April to August 2010 for instance), but in general, a trend line for price change would be somewhere around the 1% mark. Basically, since 1999, the rate of price increase has itself been increasing by about 1% a week. This has been punctuated by brief (but large) spikes and longer (but lower) price drops. 1% a week doesn't sound like much, but that's a pretty substantive annual change...

6. We actually had a pretty nice downturn in prices between April 2011 and December 2011. I'm not sure what's happening there, but that's a prolonged downward price movement during an economic recovery (albeit a slow one).

Gas prices are rising... as they have been

Data from The U.S. Energy Information Administration tracks the average price of gasoline in the United States.  For purposes of the following graph, I am using all grades, reformatted prices.  For reference, changing the formulation of gas changes the prices - but not the general shape of the curve.

So, this is what gas prices have looked like since 1994.

1. Regardless of the time frame, gas prices fluctuate. Whatever the trends, there will be times where we are way above or way below the trend. Don't let yourself be lulled into believing that low prices are a sign of the future - they are temporary distortions. Use the short-term savings to help cover the next spike over trend.

2. There is a somewhat stable, but mildly upward sloping trend evident from 1994-2000. Those were the good old days, they are over.

3. After the 2000-2001 recession low point, gas prices have since risen and generally by a fairly accelerated amount. This is the new trend. Our current prices are a bit over the new trend line, but at the tail end of last year they were below that trend. Enjoy the short downturns, don't expect them to continue.

4. Since 2000, variation in gas prices has been a lot more spikey. Fluctuation around the trend are larger (in both directions).

5. The last big downward run in gas prices was in conjunction with the 2007-2009 recession. I suppose you could hope for $1.50 a gallon prices again if you want 12% unemployment. I don't think that trade off is a good one though.

The real driver of price is growth in the global economy which has averaged around 5% (barring the 2007-2009 recession). The story is in the emerging and lesser developed economies - which are growing faster and have a lot more people than the advanced economies.  I will put something together on this next week.

Nothing suggests this general trend is going to change. Capacity (far more important to the problem than drilling) has been increasing globally by about 2.5%. For reference, growth in China alone has exceeded global refinery capacity.

Realistically, the question isn't why are prices so high, it's why aren't they higher? The answer is fuel economy. We are getting a bit better at burning fuel, somewhat offsetting the rising global demand patterns.
If you REALLY want to help, sitting out on a day of fueling up isn't the answer. At best it does nothing to that days global demand. At worst, you hurt the employment status of some average Joe/Jane working at the gas station.

Really helping involves making smart decisions on your fuel consumption. Use more fuel efficient vehicles, carpool where possible, travel outside of traffic congested times (if possible), work from home, heck even the much maligned 'check your tire pressure.' They are all fairly insignificant, but they actually address the underlying economics in a way that screaming into the wind (a fuel boycott) doesn't.

Higher gas prices lead to bigger hoaxes?

The following image made the rounds through email forwarding recently.

There is an awful lot wrong with this proposed boycott. Not even considering the basic fact that the boycott merely shifts demand around by roughly 24 hours, this particular boycott is just full of wrong.

Some facts are in order:

1. Throughout the month of April, 1997 the national average price for a gallon of gasoline varied from $1.25 to $1.26. If this famous protest did occur in April, 1997, it failed miserably.

2. Additionally, April 1997 gas prices were right in range for the entirety of 1997. For 1997, the lowest point for the average gas price was $1.19, occurring in December. The high point for the average gallon of gas was about $1.32 in September. Again, if this April protest is more than an urban legend it was a pretty dismal failure.

3. In paragraph three, the protest organizers want you to not use gasoline on April 15, 2011. Now, I don't know about you, but I'm pretty sure my time machine doesn't get good gas mileage.

4. Incidentally, the average price of gas in April 2011 was about $3.78 just before the proposed 2011 protest. This is a recycled bit of urban legends (so, kudos I guess for "going green" with your urban legends).

5. For those scoring at home, gas prices in April 2011 went up the entire month (closing at around $4.01). The 2011 protest was about as effective as the 1997 one apparently.

I will post a photo of average gas prices from 1994 to present in a later blog post. It's pretty clear that the slight upward trend in gas prices from 1994-2000 turns into a hectic upward trend from 2000 on. Plan on gas prices rising as a trend going forwards. There will be some down-spikes, but those are lulls in the storm not a new trend in itself.

Fake movements like this really irritate the heck out of me. They don't help, they distort reality and by making people feel like they have done something, they actually prevent working on resolving genuine underlying problems.

(Source of rebuttal: U.S. Energy Information Administration, www.eia.gov)

Censoring the Internet?

A good deal of attention has been paid recently to the promotion and subsequent demise (or at least delay) of SOPA and PIPA.  Collectively, these two bills proposed a fundamental new approach to policing intellectual property rights on the Internet.  The furor over the bills, rightly, focused on the lack of due process involved, the incompatibility between the laws themselves and the technology driving the Internet, and the criminalization by association of ISP’s and content providers built into SOPA/PIPA.

It is frightening how close these bills came to passage with minimal public discourse.  Even more alarming is the strong, bipartisan support each bill enjoyed prior to the major Internet outcry.  Even with much of that support eroded, a significant number of members of congress support SOPA/PIPA.  With SOPA/PIPA more or less dead in the water, focus should be turned to the reason these bills existed in the first place.  Because of these reasons, we will see more of the same in the near future.

Some attention is currently focused on greed as a determinant.  Primarily these charges come from the more extreme SOPA/PIPA opponents, indeed some of these opponents are openly guilty of the piracy and copyright infringement that SOPA/PIPA were designed to combat.  These charges, though, miss the point in the larger debate.

The larger debate is an ongoing battle over the meaning of Intellectual Property in a globalized, digital world.  Virtually every advanced economy offers some form of market protections for inventors and creators in the form of patents and copyright.  Unfortunately, various countries have different standards for IP protection and the Internet exacerbates this problem due to the ease of rapid proliferation of digital works.  Further, our current copyright laws are highly confusing.  So much so that it is quite possible that the author of the SOPA bill himself may have committed copyright violation on his own website.

This fundamental right protects the creator’s ownership of IP, enabling them to leverage supernormal profits during their protected period.  While this seems like an affront to basic free markets, it is an affront commonplace in market-based, capitalist systems.  Further, if it is an affront, it carries some very well defended proof of need.  Lacking such protection of creative IP, market forces actually work to erode IP profitability – so much so that the costs of creativity generally exceed profits in a non-protected market.

In short, we need some form of IP protection.  The questions that emerge are how much, for how long, and in what form?

This is an incredibly important topic for small business, and business in general.  The Internet, in its current form, opens the door to many small businesses.  Whether we are talking about self-publishing e-books, writing apps for mobile devices, selling goods, or any number of other fronts, small business is thriving on the Internet. 

Given that neutral parties assess the overall economic damage from piracy to be rather trivial, we should take great caution before passing an act like SOPA/PIPA.  Effort should be made to protect IP, however that actions should take the form of standardizing IP definitions across countries and working to establish multi-national agreements to protect IP and enforce actions against extreme violators. 

At the same time, we should engage in a discussion of length of protection for IP.  Our current length of IP protection is based on a print economy wherein travel and publishing time ate into the profit potential period for the creator.  Given advancements in production and distribution technologies – and indeed due to the instant distribution capabilities of the Internet, we probably need to shorten (not lengthen) the window for copyright protection. 

We do need to remember that IP protection has a beneficial purpose.  While there are vested interests on both sides of the current debate, we need to work towards some form of simple, standardized, enforceable IP protection. 

SOPA/PIPA was not what we needed and worse, both bills may still come back. 

New Publication: Understanding Plagiarism

Iryna Pentina, Leonard Love and myself are proud to announce the release of a study examining backgrounds of academic dishonesty.  In "Plagiarism: what don't they know?" we examine student awareness and understanding about their roles and responsibilities related to plagiarism.  The article is in print in the January 2012 issue of the Journal of Education for Business.

Our findings suggest that students are reasonably well informed on the meaning and importance of plagiarism.  However, our findings also suggest that gaps exist in understanding what specifically constitutes plagiarism.  Interestingly, the gaps are different for online-only students and more traditional, face to face students.  Further, there are some specific items which most students generally exhibit misunderstandings.

New publication: Mobile Marketing

David Taylor, Iryna Pentina and myself are happy to announce the pending publication of our mobile apps research.  In "Mobile application adoption by young adults: A social network perspective," we examine the influence close advisers have on young adults in their decision to adopt specific mobile applications.  The article will appear in the winter 2011 issue of the International Journal of Mobile Marketing, scheduled to publish in January 2012.

Our findings suggest that (a) having a friend/family member using a mobile app is a significant predictor of ones adoption of the same app, but that (b) young adults are more likely to turn towards their friends for some types of apps while turning to family for other types of apps.  This is the third project Iryna, David and I have published looking at social influences on consumer preference.

e-Destroying your firm’s reputation

I am a bit late to the party addressing this topic, but the story of Paul Christoforo’s destruction of Ocean Marketing and near destruction of his client N-Control is a cautionary one worthy of repetition.

Ocean Marketing was a one-man operation providing services to, among others, the N-Control company.  N-Control had created the Avenger controller, an add-on to the X-box video game controller.  Ocean Marketing was handling order fulfillment until an unfortunate incident unfolded in December, 2011.

A customer inquiry regarding the delivery of the product, led to an increasingly hostile exchange of emails between Paul Christoforo and the customer.  As the customer dialog deteriorated, Paul resorted to an escalating series of name dropping and used several unprofessional comments such as “you just got told *****,” and the unfortunate typo “I wwebsite as on the internet” which has gone on to become an Internet meme.

The customer forwarded the email exchange to Mike Krahulik, otherwise known as “Gabe” from the web comic Penny Arcade.  Since the Penny Arcade trade show Pax East was included in the places Paul Christoforo indicated he had access, Mike (as the tradeshow director) decided to intervene on behalf of the customer.

Paul (writing as Ocean Marketing) continued to escalate his name dropping up until the point he discovered that Mike (as Gabe) would be including the exchange as part of the Penny-Arcade blog and comic strip.  Once that occurred, the Internet took over with websites like the Consumerist, Reddit and Fark quickly spreading the message.  Before the cycle concluded, Ocean Marketing made it to the major news media, landing a not so conciliatory interview on MSNBC.

As the hubbub grew, N-Control dumped Ocean Marketing as a client and N-Control was themselves forced to issue a press release distancing themselvesfrom Paul Christoforo, Ocean Marketing and the incident itself.

The damage is, as they say, done.  Ocean Marketing has lost a major client and Paul Christoforo has quite a bit of unfortunate baggage attached to his name (go ahead and do the Google search).  N-Control also apparently lost a number of orders due to the actions of an independent business partner.

There are three obvious lessons to be learned here. 

1. Most importantly, always treat your customers with dignity.  You may not always have the answer they want – you may sometimes have to say “no” to a customer.  But you should always be professional and courteous.
2. Perhaps the next most important lesson, particularly for the small business, your reputation is affected by everyone who does business in or near your company name.  N-Control didn’t do anything wrong here, but N-Control suffered all the same.  Take time to scrutinize your business partners, particularly those that interface with the public.
3. Finally, any conversation taking place over the Internet is inherently public.  Even a “private” email exchange can quickly cross the web.  Never hit “send” in the heat of the moment.  Always consider how others might read your words.  Always remember the Paul Christoforo story!