PRICE DIFFERENCES: It's about more than competition.
It’s a common bone of contention for drivers, even when the cost of gas isn’t at the astronomical levels we’ve seen lately: Why does a gallon of gasoline in El Dorado — or Pine Bluff, or Fayetteville— cost 20 cents more than it does in Little Rock, or vice versa?
Sure, we all understand about those environmentally tuned “blends” that make gasoline more expensive in some areas of the country. But is there really any reason for the radical differences in gas prices between one city in Arkansas and another or even one neighborhood and another in Little Rock?
While the experts we talked to said that gouging might be the only thing to term some of the most drastic jumps at the pump, what sets gas prices from city to city is complicated.
Jason Toews is the co-founder of gasbuddy.com, the Minneapolis-based group of websites that includes www.littlerockgasprices.com and www.arkansasgasprices.com, as well as 171 other sites that list gas prices updated daily. On Tuesday morning, a peek at www.arkansgasprices.com found regular gasoline ranging widely— from a low of $1.97 per gallon in Malvern to a high of $2.20 cents per gallon in West Little Rock, where you might think a bigger population and greater demand and competition should lead to lower prices.
Toews says that a big reason for the difference between one city and another is the perfectly legal practice of “zone pricing,” in which wholesale suppliers actually charge stations different prices for gasoline. A city like Little Rock might have as many as a dozen different “zones” determined by perceived wealth, daily traffic patterns, proximity to the interstate, or even the distance between stations.
“The refineries base it on what they think the market will bear in the area,” Toews said. “A more affluent area, where people have more money and are less price sensitive, they’ll actually charge (stations in that zone) more than an outlying suburb or a less affluent area.”
Toews said that in a given zone, stations are often within a cent or two of one another because of plain old competition.
Jacob Bournazian, an analyst with the Department of Energy, said that in addition to zone pricing, there are dozens of other reasons why gas might be more expensive from city to city, station to station or block to block. Does the owner own his own lot, or is he paying rent? Is that owner the owner of the station, an independent, or a branded franchisee? If he’s a branded franchisee, is he a salaried manager, or is he a commissioned agent? How much volume is each zone using, and is the current wholesale price making it harder for station owners to move gasoline in volume? Bournazian said these are only some of the factors that a refinery’s state marketing managers think of when deciding which zones will get a better “tank wagon price,” with station owners and whole zones being rewarded or punished almost indiscriminately.
“The only thing that brings them in line in terms of price is the competition,” he said. “The keener the competition, the more uniformity you’re going to see in pricing. As soon as someone gets away with an extra penny, you’re going to see someone else eat that away. As soon as someone steals gasoline sales volume from another station, that one’s going to try and steal it back.”
One the bright side, Bournazian said that one thing Arkansas has going for it in terms of gas prices — and when they’ll come down — is the number of independent station owners. Whereas branded owners must buy from their parent refineries, no matter what the cost, independent dealers can shop around for the cheapest wholesale supplier.
A check of Department of Energy records shows that Arkansas is using 4.1 million gallons of gasoline per day, 3.8 million gallons of which are sold by independent stations. That puts the state in a much better position that some states, where as much as 75 percent of the gasoline is sold by branded dealers.
Another positive factor for lower gas prices in Arkansas, Bournazian said, is that many stations in the state also contain a convenience store. According to the National Association of Convenience Stores, more than 55 percent of revenue at these stores comes from non-petroleum products, which can provide enough revenue to cover the owner’s fuel transportation costs, and allow that station much more flexibility to run at a thin margin on gas prices.