Why does the gas station across my street have higher prices? The general response is different brands have different settings of prices based on location, advertisement fee, etc. Does the gas with a higher price provide better quality gas? As customers, we often wonder how should we choose the gas station that maximizes our marginal utility?
First, we can stand in sellers' shoes to consider factors that help them to set the gas price.
Factor 1: Many high price gas station need to pay the fee over each purchase
ARCO is at a much lower cost than other gas providers such as Chevron and Shell because ARCO only accepts cash. In that way, ARCO does not need to pay the fee over each purchase. Instead, ARCO customers have to pay the transaction fee around 35 cents.
Factor 2:Many high price gas stations include the service of premium gas
A lot of high price gas stations claim they have additives to refine gas, making premium gas healthier than regular gasoline. With no doubt, the purpose of premium gas is to earn more money by providing customers the better service. However, according to the AAA test, premium gas does not have a significant advantage than the regular gas.
The common misconception: different prices of gas have different qualities.
As customers, we generally believe that marginal utility is related to the products' quality and whether our gains worth our payment. In this example, we can see that higher prices gas do not mean higher quality gasoline. It's a misconception that we gain more marginal utility when buying more expensive products.
Marginal utility can be mislead and not always the standard to decide how we should purchase the products. Considering what sellers did to make the products more accessible to us is also important. Instead of misleading by the satisfying price, customers can learn to choose the products that truly satisfy their needs and create meaningful marginal utilities.
Sources:
https://psmag.com/economics/gas-stations-are-so-weird
https://www.cbsnews.com/news/aaa-premium-gas-not-worth-the-money-for-most-cars/
I agree with what you say about gas stations, as there are many reasons why some prices are higher than others and that has a lot to do with competition. The fact that ARCO doesn't accept credit means that they do not have to deal with fees that other stations have, and they can therefore lower their prices so that customers will buy their gas instead of a more expensive station's. There is also competition for some based on the types of gas sold, as some stations offer other types such as premium and diesel. Overall, this is helpful for us as consumers of gas for our vehicles, and can help us understand various pricing at different gas stations.
ReplyDeleteIt is interesting to consider the motivating factors that would encourage a consumer to purchase one product over another when they are almost exactly the same. The convenience of buying gas at chevron or shell over arco persuades many people to pay a higher price because it is easier to carry a credit card rather than cash. This also plays into the idea that we are not rational consumers. It makes little sense to pay more for one product while another, cheaper product is readily available.
ReplyDeleteBeing a constant gas buyer, this article is really useful to make conscious decisions about where to buy gas. If I'm going to be honest, when I first started driving I didn't even look at the price of gas, until I went to a gas station in San Jose and noticed that my overall gas price was SO much cheaper. After this experience and reading this article, I will definitely consider the price of gas as a main factor. However, I wonder if in addition to price, there's also data about the convenience of locations of gas stations, say if it's on the right or left side of the street. Thank you for the information, I will be making better decisions while picking which gas station to go to!
ReplyDeleteIt makes sense that people are willing to pay higher prices for a "premium" brand that has no obvious benefits. This type of behavior is often exploited by fashion brands who sell ridiculously expensive clothing that is not particularly high quality (not to name any names). Another factor that could possibly affect the cost of gasoline is land price. Gas sold in Los Altos would probably have to be a lot more expensive to offset the higher rent on the lot than gas in the middle of Nebraska would.
ReplyDeleteMy old boss told me a story from one of his previous jobs as a gas station manager: he sometime bumped up the price of gas by a nickel (without permission from the gas company) and kept the difference. As gas is necessary for many people, it has inelastic demand and gas companies can charge as much as people are willing to pay.
ReplyDeleteI think it's important to consider convenience as a factor in this equation: while it may be cheaper to gas up at the local ARCO, it's much more convenient to pay by card. In addition, if the ARCO is a solid mile away, why not just fill up at the Chevron across the street? People justify their actions by saying they are paying for convenience in addition to the price of gas.