RE: Socialism in Venezuela: Why is gasoline so cheap? 9510 gallons of gasoline for $ 1 !!!
Very interesting article. For a state owned company, it would make sense to simply sell at 10% above production costs. The problem with that would be that they'd simply increase the costs and pay their management (=buerocracy+government) more and waste money for stupid infrastructure projects to buy votes and then raise prices. At least that's what they do in Germany in the public sector.
A partial solution might be to make it a law to decrease the price peg by ~0.5% to account for productivity gains. But that'll never happen..
Establishing an oligopoly would not need more than breaking up the monopoly into 4-5 different companies. Ideally, you turn them into stock companies and give every household a share of one of them. The downside of this (and generally the market solution) might be that the prices go up. Oil and especially the refinery needs technology, which means you end up with a natural oligopoly structure and that tends to offer prices above the theoretic equilibrium. The counter balance to the price increase would be then that every family gets the money back via dividends from their share - minus the government tax of course, but maybe the dividends could be made tax-free (yeah, I laughed too about that thought^^).
A rational argument for tax exemption could be to allow foreign investment into the sector (for better technology+more capital). The rule could be to tax the profits with maybe 20% when they leave the country, 10% when the profits stay, but are in the hands of foreign investors and 0% for domestic owners.
I think, a government that does what's right would do it this way... lol
In Germany btw these 10,000 gallons cost you about 50,000 Euro at the gas station. If you send me them here, I will send you a brand new Mercedes back ;-)
Correct, a very good analysis that you do, but as I said, the company worked relatively well in the past, the current problem is that since there is a lot of inflation but since prices remain frozen, the subsidy is increasing.
Something that I did not mention, was that even though the company subsidizes all this, it still obtains very high income, so most of the profits that are received for the exports of oil, gas, and all its derivatives, are used for all those things you described, such as "stupid infrastructure to buy votes and then raise prices" projects and other direct subsidies.
Years ago, before the monopoly was formed, in Venezuela there were many oil companies 12 or 15 of them, then the monopoly was not necessary, the price of gasoline was low, of course not as much as now, but people could afford it. But I think that as long as it continues to be a monopoly, you can never find a real market price.
A new Mercedes? It does not sound like a bad idea.