why are some gas stations ‘ prices cheaper than others?
In: Economics
Stations typically operate on a cost-plus pricing method, meaning they add on a specific amount on top of their wholesale cost for fuel. If a station pays $1, they add 50 cents and charge $1.50. If they pay $3.37, they charge $3,87. That 50 cents/gallon goes to rent, employees, owner profit, etc.
So some stations need to charge a higher cost-plus charge due to things like higher rent in a fancy neighborhood, or higher wages. Or maybe they simply do so because they’re in a high demand area (like right off an interstate). And others charge super low prices (ie. Costco) because they’re using gas as a loss-leader to drive demand for other more profitable transactions, like getting the person to run into Costco, or buy a Slim Jim and six-pack inside the convenience store.
It could also just be due to when stations got their last delivery and the cost they paid. If one station got a delivery 3 days ago and the other station got it today when wholesale prices have gone up 10 cents, then the stations’ prices could be about 10 cents apart.
And there might be differences in tax rates added into the price if the stations are in different towns, counties. Sometimes all it takes is a block or two difference and stations have to charge different tax rates that affect the advertised price (gas taxes are rolled into the price, not added on top like other sales taxes).
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