G-Man II,
dragboat,
buster and others bring up very good points about economies of scale and their possible effect on oil pricing and quality. But
Groucho said something a while back and it seems to have been largely forgotten in the most recent posts:
"Mobil has a competitive advantage. This does not mean that their economic advantage is passed along to the consumer with a better value."
Exactly!
Most of us have seen Castrol's weasely response to the criticism they received when their Syntec ceased being PAO-based, and became a Group III oil. Among other things, they claim that moving to a Group III oil gave them economic advantages they didn't have with PAO. Perhaps someone else can find the direct quote because that sentence is from my memory and not exact. Anyway, did I miss the retail price drop of Castrol Syntec in 1998? Around here it stayed the same ... then more recently went UP. They chose to pocket the difference.
'Kule:
"With Mobil's economy of scale, and the fact they produce their own base oils and addtives, they could produce a better oil."
I think the operative word here is "could." I remember having a similar discussion with
MolaKule a couple weeks ago. With their army of chemists and nearly limitless resources Mobil
could produce the finest internal combustion lubricant the world has ever known. However, I think they have decided to produce a single competent (but compromise) product for the (generally ignorant) mass OTC automotive market.
I also need to point out that companies "sell" products and services between their divisions and depending on management style, etc ... they may include mark-up on those sales. This pressures each division to be independently financially viable and exposes laggard parts of the company for possible selling/restructuring. So, Mobil's refinery wholesale base stock price to its blending plants may be the same as (or very close to) its price to an independent blender. The difference is all those profits internally add up to greater profits for the corporation as a whole (which is the purpose of a corporation's existence) and not necessarily cheaper products for consumers.
Usually, the only time a company lowers its price is when they are seeking greater market share. They make little money in the short run but once they have a greater share of the market (and possess an established brand loyalty), they can raise prices and (hopefully) make up for those leaner years.
And hey, look at all the money Mobil spends on advertising/sponsorships/marketing compared to Red Line which runs miniscule black & white ads in the back of a handful of car magazines, usually right next to the offers for discount sources of Viagara and books which guarantee to help you score more with women.
I like to see that people are thinking about the behind-the-scenes factors and their effect on price and quality (with ALL products, not just oil) but with so many variables and guesses involved, I don't think any of us will be able to arrive at any definitive conclusions.
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Bror Jace
PS - In case ya'll couldn't guess, I have a background in marketing but currently work in finance.
[ February 11, 2003, 02:38 PM: Message edited by: Bror Jace ]