more on Prices Fuel a Rebellion / Drivers Tired of Paying More for Premium Gasoline Switch to Regular

[David Farber <dave () farber net>]

Begin forwarded message:

From: Joe Pistritto <jcp () jcphome com>
Date: August 7, 2005 8:25:57 PM EDT
To: dave () farber net
Cc: jwarren () well com
Subject: Re: [IP] Prices Fuel a Rebellion / Drivers Tired of Paying  
More for Premium Gasoline Switch to Regular


While we might all think there's a conspiracy there, there is  
something rational about that effect.  I've actually noticed this  
effect as far back as 1973, and somewhere along the way I read about  
some research that was actually done into the effect, becuase so many  
people had the same observation you had.

Its the same reason that stocks go down faster than they go up, in  
general.

Its psychology.  If you own a gas station and hear that prices are  
going up upstream of you, you immediately start worrying about being  
able to *replace* the fuel you're selling today.  (remember, the gas  
station owner has to pay for the fuel immediately when its delivered  
to him, not when it's later sold to motorists).   What's more, the  
retail margin on gasoline is not large. (its roughly the difference  
between whatever your local Costco sells gas at and the price you  
notice at your local station.  Costco sells fuel at cost to get  
people to drive to their stores.  Clever that.)  And your local gas  
station probably has higher fixed costs relative to volume than  
Costco does, so that probably overstates the case.  Here in the Bay  
Area, it seems to be about 10 cents/gallon, maybe 15.  Or about 3-4%  
at current prices.  Margins are higher on midgrade and premium.

So there's a natural bias to panic a bit and bump prices on the  
expectation of a higher bill coming soon.  On the flip side, he's  
already budgeted for the current fuel price in his next fillup from  
his supplier, if the price is going down, he doesnt have a problem  
and can reduce prices as his deliveries drop in price.  Since gas  
stations are pretty competitive with each other in the same market,  
he can't retain too high a price for long or he'll lose volume pretty  
quickly.

(similarly, investors tend to worry about being "stuck with" a stock  
going down more than the worry about "missing" one going up, so the  
sell order comes more quickly and with greater urgency than the buy).

Because it's free market doesnt mean it has to have symmetrical  
response to an impulse function (price information in this case).    
Unfortunate, but true.

No conspiracy required.
 -jcp-

----- Original Message ----- From: "David Farber" <dave () farber net>
To: "Ip Ip" <ip () v2 listbox com>
Sent: Sunday, August 07, 2005 3:47 PM
Subject: [IP] Prices Fuel a Rebellion / Drivers Tired of Paying More  
for Premium Gasoline Switch to Regular



> Begin forwarded message:
>
> From: Jim Warren <jwarren () well com>
> Date: August 7, 2005 6:06:23 PM EDT
> To: dave () farber net
> Subject: Re: [IP] Prices Fuel a Rebellion / Drivers Tired of  
> Paying  More for Premium Gasoline Switch to Regular
>
>
> Has everyone else noticed that -- when unrefined/raw crude oil  
> barrel- prices increase, there is a near-INSTANT increase in retail  
> pump- prices for the finished, refined product ... but when crude- 
> oil  barrel-prices decrease ... gee gollie gosh ... it seems to  
> take WEEKS  for the retail prices to similarly subside.
>
> That's called "free enterprise" and "marketplace competition" ...  
> cartel-style!
>
> --jim
>
>
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