Why do gas prices vary from station to station?

Question

This isn't a homework question like most of the questions on here. It's just something I was thinking about. It seems to me like gas would be relatively close to a perfect competition situation... homogenious product; many buyers and sellers; etc. I can see stations near the highway charging more because people are lazy, but how to gas stations that are right across the street from each other get away with differing prices?

"Competition" is precisely why the prices SHOULDN'T vary. Gas is a homogeneous product, thus it should have a perfectly elastic demand curve... in other words, when a particular seller raises its prices above the market equilibrium then demand for that particular seller's product should drop to zero.

Answer 1

I agree with the previous writer who noted that consumers are lazy to some extent. The cost of paying a few cents more to one gas station that is more convenient is balanced by the lower time required to go to the closer station.

Also, where gas stations aren't in view of each other, and comparison is more difficult, there is an uncertainty factor that the next gas station may have a higher price, or be farther than you have gas to travel, makes us more willing to spend more on the convenient station.

I agree that gas is in essence a homogeneous commodity, but gas companies work hard to differentiate their product. If all consumers value gas from any station as much as any other, there would not be so much advertising for Exxon or Chevron. The oil companies also use various tools to retain customers, such as loyalty cards, to keep customers coming to them.

Cheaper stations may also use their gas as a "loss leader" to get people into their stores, where they make impulse purchases at higher prices than they might at a grocery store.

Answer 2

Good question, and I think there are several answers.

It does all come down to that consumer "laziness" -- though I'd say it's totally justifiable to opt for the most convenient gas station when the difference really just adds up to 50c or a dollar per tank -- that's trivial chump change to most people.

And so on a divided street some people won't want cross to the other side and get turned round in traffic. Some people will shop at whatever's closest to work or home. Some people will use the grocery store or Wal Mart pump since they're shopping there anyway. Some people will take the first thing they see because they're low on gas. For all these little reasons the competition is not perfect -- people will accept a higher price for convenience, which is why I think one station can still sell gas even if it charges a nickel more that the guy across the street.

As for why the station picks one price rather than try to equal another station -- some gas stations are locally owned, some are corporate-owned, and some pumps are just added features at another type of retail company (ie, Wal-Mart or a grocery store chain). I'd assume some local managers have the authority to react to the guy across the street, while some are told what prices to use and have limited control. Meanwhile costs structures are different depending on the business type; and a larger retail operation might use gas as a loss-leader to get people in their parking lot, while a pure gas station needs to try to profit.

Answer 3

its a corrupt world, when 911 happened there were gas stations that raised there prices from 9 to over 30 bucks a gallon.

Answer 4

Free enterprise

Answer 5

competition

Answer 6

different owners, different price settings.