First, gasoline prices are set at the pump so that the station owner can refill the tanks and stay in business. The price is set based on what the owner believes the cost will be to refill the tanks. If the future price is going up, then the gas currently at the station has to be sold at a higher price so that there will be enough case to refill at the higher price.
Second, most areas of the country are served by very few sources of gasoline. For instance, in Denver, there is a pipeline run by Philips Petroleum which originates in Texas. A lot of different gasoline stations are filled by trucks which are filled at the Philips pipeline terminal. The pipeline is “scheduled” out of the Philips home office in Bartlesville, Oklahoma. I have worked at both the terminal and in Bartlesville. There are additives put in by the various vendors to differentiate quality.
The point is that transportation costs for the Denver gasoline supply is shared by a lot of different gasoline vendors. And the cost for the transport is essentially the same for all. I have no idea how the sales price at the terminal are set for each vendor.
Gasoline is a commodity whose price, by the barrel, is dictated on markets like the Chicago commodities exchange. Being a commodity, the margins are thin and the customer prices at the pump will not vary much from vendor to vendor. This is not because of collusion, but because it is a commodity.
During the late 1980’s, it was distressing to see the government step in and try to “protect” the consumer. The Feds made a rule that the companies who controlled the distribution; e.g., Philips Petroleum for Denver, were not allowed to favor the company stations in the face of shortages. Thus, Philips had to supply gasoline to cut rate gas stations in the same quantities as prior months. The result was that Philips gas stations chose to not raise prices and ran out of gasoline since they were selling at a cheaper price. (If they had raised their price, pundits would have stepped in and criticized them for gouging.) At the same time, since the quantities were guaranteed, the cut rate stations had gas and raised their prices! So the cut rate stations took advantage of the government rules by gouging customers.
How does the station owner of brand A at location 1 know to raise the price at the same time and to the same amount as the station owner of brand F at location 6, nine miles away?
And so do owners B through E at locations 2 through 5...
Same here in Reno. One pipeline in and a large terminal for storage and final mixing. We pay about 30 cents more a gallon the other places not that far away. A few years ago there was a guy that tried to establish a truck line to beat the pipeline company. His operation went bust in three months.
Thank you, your response answered many questions for me. I always wondered where the marketing differentials “happened” knowing all the actual gasoline was basically the same coming out of the refineries.Very interesting, very informative. Thank you for taking the time for a complete response.