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With one exception, we have a 4 cent difference where I live.
The exception is a gas station that is known to gouge tourists. The locals never use it. So, for locals, our price differential is about 1%.
One possibility is that the location of the gas station involves a cost premium. Leases of property immediately off I-95 exits, for example, are likely higher than 1 or 2 miles from the highway. Maybe they have a poor business model for promoting their Quickie-Mart goods? One cannot be sure simply by viewing the price per gallon at that station.
What metropolitan area are you in? I'd be happy to look it up and see how tight the delta is on high vs. low, I'd actually challenge that 4 cent amount.
One possibility is that the location of the gas station involves a cost premium. Leases of property immediately off I-95 exits, for example, are likely higher than 1 or 2 miles from the highway. Maybe they have a poor business model for promoting their Quickie-Mart goods? One cannot be sure simply by viewing the price per gallon at that station.
What metropolitan area are you in? I'd be happy to look it up and see how tight the delta is on high vs. low, I'd actually challenge that 4 cent amount.
Yes, there are very few suppliers in your market as it's probably very rural. The tourist station is at 3.59 (I'm assuming this is the station you're referring to).
Raleigh has a ton of stations, and I'm suspecting the delta is greater as a result, since stations operate in locations that are more convenient than others as well as have varying profit margins on their respective Quickie-Mart. Sheetz is a chain of supermarket sized Quickie-Marts and typically sells gas for cheaper in order to draw in people to buy things like pretzel-sandwiches (yummy stuff) and on demand milkshakes. They also lease in places that are outside Raleigh city limits to lower their tax base I would assume.
What I'm trying to suggest is that price gouging is merely an emotional and sexy term, something people want to believe in. Unicorns, tooth fairy, come to mind IMHO.
Yes, there are very few suppliers in your market as it's probably very rural. The tourist station is at 3.59 (I'm assuming this is the station you're referring to).
Raleigh has a ton of stations, and I'm suspecting the delta is greater as a result, since stations operate in locations that are more convenient than others as well as have varying profit margins on their respective Quickie-Mart. Sheetz is a chain of supermarket sized Quickie-Marts and typically sells gas for cheaper in order to draw in people to buy things like pretzel-sandwiches (yummy stuff) and on demand milkshakes. They also lease in places that are outside Raleigh city limits to lower their tax base I would assume.
Of course there is more competition in a major urban area. Phoenix is our nearest and that is 110 miles away.
But to use beer as an example. If I go to Safeways, I have a huge choice of different beers at different prices. The fact that we are a relatively small town does not affect that. We even have our own local brew - Oak Creek - which is excellent and priced competitively.
And that is the problem with the oil market. Too few producers, too few major oil companies and the gas stations are at the mercy of their suppliers. The normal rules of free market competition get distorted to the disadvantage of the consumer.
Of course there is more competition in a major urban area. Phoenix is our nearest and that is 110 miles away.
Agreed.
Quote:
But to use beer as an example. If I go to Safeways, I have a huge choice of different beers at different prices. The fact that we are a relatively small town does not affect that. We even have our own local brew - Oak Creek - which is excellent and priced competitively.
Perhaps there is a larger barrier to entry for gas stations (enviromental?) than grocery stories and other outlets that sell beer?
Quote:
And that is the problem with the oil market. Too few producers, too few major oil companies and the gas stations are at the mercy of their suppliers. The normal rules of free market competition get distorted to the disadvantage of the consumer.
Another component in the pipeline are refineries. Would environmental regulations create a barrier to entry for new startups to enter the market, perhaps with an improved method that saves time and money to refine fuel? Supply chain relationships might be easier to form with a grocery store and beer distributors (esp. microbrews who can't seem to keep their good brewski on their shelves long enough). My friend owns LoneRider (former Cisco employee who quit to start his own microbrew), and they are very popular around here. Those relationships with grocery stores he claims are easy to make. What he can't do is make enough beer to supply them all, and they go for $9/six pack.
In short, I think there are many more regulations and environmental standards that create barriers of entry for both gas and oil as opposed to microbrews. One reason for the polynomial increase in microbrews recently might be business friendly regulations?
And therein lies the problem. By its structural nature, competition in the oil/gas market is restricted. That encourages participants to behave as if they are in an informal cartel. While price gouging is probably the wrong word, profits are maximized without the "safety valve" of genuine free market competition to restrain them. In fact, the "political pressure" that rising prices causes is probably the most significant restraint.
And therein lies the problem. By its structural nature, competition in the oil/gas market is restricted. That encourages participants to behave as if they are in an informal cartel. While price gouging is probably the wrong word, profits are maximized without the "safety valve" of genuine free market competition to restrain them. In fact, the "political pressure" that rising prices causes is probably the most significant restraint.
There is certainly an argument here, although I still believe the monopoly/oligopoly is government-induced through environmental regulations, especially in terms of refineries. Eventually, when these regulations are dropped or lessened, additional refiners could be built and perhaps even new companies who have innovative ways of refining gasoline can enter the market, we might see some real competition. I think people focus too much on either the gas station (because that's where they're buying it from after all) or the oil companies (using absolute profit rather than margin to promote a sexier price gouging message)
What I always find interesting is how people use the tired rhetoric such as "why are gas stations priced the same everywhere?". Of course, here in Raleigh gas prices differ by as much as 30 cents from top to bottom.
30 cents? LOL...c'mon, really? Within the exact same area?
3.14 cheapest, 3.49 most expensive. Correction, 35 cents.
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