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?
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A few possibilities
1 Gas stations in a good area (for them) can charge more. For example a gas station right off the highway can charge more cause they know people driving on the highway that need gas will stop at the closest station even if it’s more expensive.
2. All gas is not the same. The gas could be lower quality (less additives that are good for car engines) and/or the gas station is doing something illegal like setting the pumps to stop at .95 gallons while they say they gave you 1 gallon
3. The gas station could be intentionally loosing money on the gas they’re selling to get more people to come inside and buy other stuff
I wouldn’t trust the one gas station in town that is way cheaper than the rest.
For gas stations selling a similar product in a similar area the gas prices can be just a draw based on the economics of whatever else they expect you might buy once they get you in the door.
If my gas is $.10/gal cheaper than my competitors I might lose out on $1000 for every 10,000 gallons of gas I sell, but I’m expecting that a certain percentage of the people who stop for my cheaper gas are going to buy soda, coffee, beer, candy, sandwiches, lottery tickets, pizza, etc.
I’m not sure of the overall profit margins that gas stations make per gallon of gas but I know that where I live they have become less about selling gas over the last 10-20 years and more about selling everything else.
Most people don’t want to drive a mile or two for gas, and that’s assuming they even know there’s cheaper gas only a mile away (most people won’t).
Even if that mile is only 5 minutes and saves $20, people don’t generally so perfectly budget their time. Most people will just think “I need to get gas, I can just get gas here and get home 5 minutes sooner”.
Supply & demand absolutely apply, but you need to think about more of the factors that go into “demand”. It’s not just “how much gas do I need?”.
It’s a messy combination of: do I care about brand and, if so, which one; do I need a particular grade or type; how far out of my way am I willing to go; do I know/care to check if another station has it cheaper; do I want anything else while I’m at the gas station; do I want to make a left or right turn; and so on.
“Demand” is really complicated and varies wildly by person, place, time of day, mood, and lots of other things. As a result, there’s no “one demand” and hence no “one right price”…all the gas stations are all trying to find their one optimum, which will vary with their business model and lots of other things, among a wildly changing sea of demands, and won’t be the same as an a slightly different gas station on the other side of the street.
The problem is that you’re confusing simple pricing decisions with larger supply and demand issues. In other words – supply/demand is macro economics where as pricing decisions at the pump are more micro economics.
Additionally economics teachers/professor just love to talk about supply and demand issues but what they often don’t tell you or don’t talk about is all the other influences on pricing.
All you described is simply pricing competition – not actually supply and demand issues at work.
So one company is willing to sell their gas for 10 cents cheaper thinking they’ll more than make up for it with the increased customer volume.
Another store sees them undercutting the price and thinks “Man fuck that guy” and undercuts him by 10 more cents.
A third shop thinks “fuck both of them I’m keeping my price where it is because I’ve got the better gas” or whatever.
These are all individual pricing decisions and have very little to do with supply and demand.
Now there will always be people that believe other marketing hype about the cleaners in gasoline and how one company’s gas is better than someone elses and there might be some real merit to that. So the guy who doesn’t change his price may actually get a substantial number of customers.
But none of this has anything to do with supply and demand.
Because prices are detached from supply and demand when you are in a “free market”
The prices are made up and raised to a point what the market could bear and the people are willing to pay for it… Since it is kind of a base necessity nowadays and people are going to buy it….
Just look at the Ukraine Russia war with those sweet sweet “sanctions”… It is a good justification to raise the prices and blame it to russia, while the cost of crude oil did not change that much and it would take months for the cost to trickle trouth the refinery systems and companies
Price of freedom… You didn’t want regulations, limitations, oversight or checks and balances, becuse those are “communist”
Now corporations are free to exploit employee and customer any time
They spend inordinate amount of money on “market research” to find out the maximum prices they can charge for their product
Because gas in most places in America is an absolute necessity and there’s no replacement product to compete with it. Sure, you have different brands and even qualities of gas to choose from, but in the end you need gas. So if every gas station in the area decides this is what people will pay for gas, then guess what? That’s what you’re paying for gas. Most of the time, the station selling $0.10 cheaper is still making a hefty profit or it’s Costco and they’re bringing you into their store. You never see gas station prices actually reflect the cost of crude. It would take an awfully high number to even change your driving habits because if you’re like most Americans, you have next to zero access to public transit and if you do have access it’s probably inconvenient and unpleasant in some way.
Almost no other goods are like this. Take food, for example, a thing we need to live some would argue even more than we need gasoline. If you’re buying cereal and Kellogg raises their prices, you could switch to General Mills or store brand. Let’s say all breakfast cereals raised their prices. It is very easy to just stop buying cereal. You could switch to yogurt or eggs. Even if all breakfast type foods raised their prices, you could skip breakfast or eat chicken tenders for breakfast. You have a wide array of competing options including to do without. Not so for gasoline.
A lot of what’s said in this thread is true or close to it, but one thing to note that is also important: time of day.
With the advent of the motorized pricing sign (it’s not just gas stations with digital signs; there are ways to manipulate the analog ones from the control center, too) companies can update their prices in real time both at the pump and in the billboard. This means that between 8-10 am when nobody’s out and about gas might be cheaper to entice the frugal people to shop. When the motors start running from 11-3 or 11-6 or whenever a place sees its most traffic you can be that little poster outside is going to be spinning upward.
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In many cases it depends how much gas a station or group of stations owned by the same company can store. Sometimes a guy who lets say has 10 stations with with 10 underground spots is get a volume deal on supply, one that the guy across the street…doesn’t get because he only has 1 station with 5 underground tanks. So he can charge less and still make more profit AND take away the other guys customers.
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