Put That In Your Tank and Smoke It

The next time anyone tells you that an increase in gasoline prices (say, as part of a carbon-tax or a cap-and-trade system) would generate unbearable costs to consumers, think again.  The Los Angeles Times reports something that I have often seen but never really thought through: gasoline stations often a couple block away from each other have radically different prices:

So Much For Perfect Competition
So Much For Perfect Competition

Known in the industry as zone pricing, the controversial practice was apparent one afternoon when Culver City resident Michael Denis, on a jaunt to downtown Los Angeles, stopped at a Chevron station to feed his Fiat 500 some gasoline at $4.69 a gallon.

About four miles away, Lupe Alfaro was filling her Toyota Camry with Chevron gasoline but was paying $3.89 a gallon.

The two motorists were buying the same grade of gasoline, which more than likely came from the same refinery in El Segundo. Yet the prices they paid differed by 80 cents a gallon, or by more than $10 to fill an average 13-gallon tank.

I can confirm this in my own Westside neighborhood.  Today I drove down San Vicente Boulevard in Brentwood and found: Conserv Fuel at $3.59; Chevron at $3.75; Union 76 at $4.39; and Exxon/Mobil at $4.59 — all within one mile of each other.

The Times says that this disparity stems from two things: 1) “zone pricing”, in which refiners sell at different prices to different stations “based on a host of closely guarded factors, such as nearby competition, traffic volume and station amenities”; and 2) consumer preferences for different gasoline brands and station characteristics.

Consider me highly skeptical.  The Times reports concedes that these policies are unheard of in just about every other retail business, and I see no reason why shoppers are more brand picky about gasoline than in any other retail product; if anything, they are probably less so.

Instead, there are two more feasible explanations in my view.  First, this could be a method of price-fixing among refiners.  At the very least, this should something that the California Attorney General should look at quite carefully.

Second, it might simply be another example of competition not working very well to reduce prices.  Consumers in convenience-type areas just don’t do much comparison shopping.  That’s their right, of course, but let’s not say that the Magic Of The Marketplace will automatically create lower prices for all.

In any event, let’s repeat the moral of the story at the beginning of the post: the next time someone tells you about the disaster that a carbon tax would create because it would raise the price of gasoline, you are allowed to tell them to stuff it.

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Reader Comments

12 Replies to “Put That In Your Tank and Smoke It”

  1. before you tell anyone to “put that in you pipe and smoke it”, you should ask what zassloff is smoking. there is no fundamental basis for this accusation of price fixing and no basic grasp of the economic factors involved in the setting here. he’s taking a real estate/commodity issue and very weakly making his true underlying argument against a free market and scary pitch for a socialist
    regime. this guy must have missed Econ 101 and world history 101 and focused on the elitist bullshit.

  2. before you tell anyone to “put that in you pipe and smoke it”, you should ask what zassloff is smoking. there is no fundamental basis for this accusation of price fixing and no basic grasp of the economic factors involved in the setting here. he’s taking a real estate/commodity issue and very weakly making his true underlying argument against a free market and scary pitch for a socialist
    regime. this guy must have missed Econ 101 and world history 101 and focused on the elitist bullshit.

  3. You can see the same pricing crap all around. Take Wal-Mart and Macy’s for instance the same brand of merchandise made over seas in the same country (like Vietnam , Pakistan , China etc.). Then you have the other stores in the middle.
    Yes my friend I have been watching this for years. And I have come to the conclusion that there is no more price-cutting just price gouging at its best
    Sent via BlackBerry by AT&T

  4. You can see the same pricing crap all around. Take Wal-Mart and Macy’s for instance the same brand of merchandise made over seas in the same country (like Vietnam , Pakistan , China etc.). Then you have the other stores in the middle.
    Yes my friend I have been watching this for years. And I have come to the conclusion that there is no more price-cutting just price gouging at its best
    Sent via BlackBerry by AT&T

  5. attackthebmac, there is no “accusation of price fixing” in the post. He presents two explanations he sees as plausible (price fixing is one of them). And he also presents the two explanations offered by the LA Times article, which he views as less plausible. You haven’t presented your alternative explanation. Please enlighten us, then: what exactly are the “economic factors involved in the setting here” that Prof. Zasloff doesn’t mention, that you believe explain two gas stations within a couple of blocks of each other (or, in some cases literally across the street) offering gas at prices that differ by as much as 80 cents per gallon? And please keep your comment civil. Thanks.

  6. attackthebmac, there is no “accusation of price fixing” in the post. He presents two explanations he sees as plausible (price fixing is one of them). And he also presents the two explanations offered by the LA Times article, which he views as less plausible. You haven’t presented your alternative explanation. Please enlighten us, then: what exactly are the “economic factors involved in the setting here” that Prof. Zasloff doesn’t mention, that you believe explain two gas stations within a couple of blocks of each other (or, in some cases literally across the street) offering gas at prices that differ by as much as 80 cents per gallon? And please keep your comment civil. Thanks.

  7. Implementation of a carbon tax across all gas stations, regardless of initial pricing due to zoning and consumer willingness to pay, will still result in the average price paid for gasoline to be higher. For instance, I always prefer to refill at Conserv Fuel because of the lower prices, whereas Mr. Schwarzenegger may choose to refill at 26th street for a price premium. After the carbon tax is implemented, we both will pay a greater amount for the same quantity of fuel. But this is not to say that the tax is not beneficial. I continue.

    This analogous to the issue of rising sea levels. Compared to low tide, the high tide can increase water levels by a foot or two, and a storm surge can increase levels by ten. Yet climate scientists give a bleak outlook of ecological and infrastructure losses associated with just inches of sea level rise over the next century. This is true because on AVERAGE, the sea level will rise, high tide will be higher, and storm surges will be even higher.

    So as Prof. Zasloff has stated, perhaps implementing a carbon tax will not be so disastrous, and we will worry no more about rising sea levels.

  8. Implementation of a carbon tax across all gas stations, regardless of initial pricing due to zoning and consumer willingness to pay, will still result in the average price paid for gasoline to be higher. For instance, I always prefer to refill at Conserv Fuel because of the lower prices, whereas Mr. Schwarzenegger may choose to refill at 26th street for a price premium. After the carbon tax is implemented, we both will pay a greater amount for the same quantity of fuel. But this is not to say that the tax is not beneficial. I continue.

    This analogous to the issue of rising sea levels. Compared to low tide, the high tide can increase water levels by a foot or two, and a storm surge can increase levels by ten. Yet climate scientists give a bleak outlook of ecological and infrastructure losses associated with just inches of sea level rise over the next century. This is true because on AVERAGE, the sea level will rise, high tide will be higher, and storm surges will be even higher.

    So as Prof. Zasloff has stated, perhaps implementing a carbon tax will not be so disastrous, and we will worry no more about rising sea levels.

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About Jonathan

Jonathan Zasloff

Jonathan Zasloff teaches Torts, Land Use, Environmental Law, Comparative Urban Planning Law, Legal History, and Public Policy Clinic – Land Use, the Environment and Loc…

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