Why do supply and demand not seem to apply with gas stations, with such varying prices and “that really cheap place!” phenomena?

Question

I have never, ever understood this. Gas is for the most part is a simple commodity. Sure, some prefer a premium brand (like Shell) to a cheaper one (like ARCO), but I can’t for the life of me figure out why there is such a wide variance even within a single mile or two of a city (and amongst the same brand!) I would think that supply and demand would reign supreme here. It’s the same stuff.

You get that one gas station that charges $0.10 less than all the others in the area and the lines are out to the street.

So where are supply and demand?

In: 38

Answer 1

Gas Stations are Oligolopies. They are not operating in a free an open market, so the laws of supply and demand do not work the same way.

Instead of the market dictating the price, the price is dictated by the oil companies in a cartel-esque fashion. There is legislation to limit collusion. How effective or ineffective said legislation is, is up for debate.