In the Wall Street Journal, “Gas-powered Vehicle Release Date,” on May 22, 2025 (printed), the journal editors insist on removing the California government’s mandate, which calls for a number that increases year by year in terms of car manufacturers’ sales. By 2026, that number should be 35%. In 2023, I wrote about why we stay away and why we don’t do it.
But along the way, the journal editor makes a basic price theory mistake. They write:
Automakers warn that quotas will force them to produce fewer gas vehicles. Prices will almost certainly rise to offset EV EV losses.
no. They are right about the impact on gasoline-powered cars on prices, but they are wrong about cash. Companies that maximize profits typically increase prices in one segment and do not offset losses in another segment. Reason: If you raise prices in that segment and you make a profit, they’re probably already doing that.
Nevertheless, they will raise the prices of gas-powered vehicles. The reason is that the don increases to offset the loss elsewhere. They are already at a profit-maximizing price, so increasing the price of gas-powered cars will reduce profits. So why do they raise them? To reduce salt. There are two ways to reach the penetration target. It’s about artificially reducing zero-emission vehicles, increasing the salt in those vehicles, artificially increasing the prices of gas-powered vehicles, and reducing the salt in those vehicles. They snatched the dock.
In 1985, I wrote about the effects of distortion on the mixing of cars sold while thinking about how auto companies would comply with corporate average fuel economy (CAFE) regulations. These regulations required that each company meet strict average fuel economy standards for all cars sold in a given model year. To achieve its goals, businesses had to sell more small cars and reduce the number of large cars. I thought I was more clear about the impact of prices than I did. In any case, the way to do so was to price the price of a high MPG vehicle below the profit-maximizing price, and to price the price of a low MPG vehicle above the profit-maximizing price. The same thing happens with zero-emission vehicles and gasoline-powered vehicles.
A little price theory can be very useful.
