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

There’s actually a lot of factors that go into this so it’s not quite as simple as it seems. One thing to note is that gas prices aren’t like the prices for something like a gallon of milk. A gallon of milk at the store is generally pretty static price wise, while gas prices vary up and down a LOT and literally constantly changing because their price is “elastic”. So the price per gallon may differ depending on when they bought the gallon and the price of oil at that time, not necessarily what the price of oil is now.

Other things are some places get better pricing based on how far the refinery is, how much it costs them to refine it, and even whah additive package is in it. This effects prices as well as brand recognition. Shell is considered higher quality gas so they can charge more than Arco. You also have the structure of the gas station where some are franchise so more people taking a cut or expecting bigger profits for shareholders.

Another factor is how the gas station makes it money. Some gas stations charge less for gas and make it up in their little store. So they may have a small mark up on gas to get you there, then when you go in and buy drinks, snacks, lotto tickets, beer, or cigarettes they make their profit there.

Gas very much follows supply and demand which is why when Covid hit all gas prices went down because the demand was low. One thing about gas is at this point it’s never going to really have no demand. People needs gas and while they can cut out certain driving, there’s still a basic need. Factor that with the constantly changing price, as well as the rest of the factors, and that’s what gas doesn’t have a single universal price for that particular area.