The Greenwich Citizen posted an editorial the other day calling for an end to zone pricing. “Zone pricing” means carving up markets into small zones, based on demographics and other information, and varying prices according to zones. Generally, zones with wealthier customers (like Greenwich, Connecticut) have higher prices although other factors, such as convenience to highway exits, also come into play. Naturally, competition plays a big role as well. Competing stations may find themselves face-to-face across important intersections. These situations tend to converge prices, although one station may offer a slightly lower price on regular gasoline, while another offers a lower price on premium.

While the Greenwich Citizen notes that not all locals are CEOs easily able to afford more expensive gas, there seems little or no good reason to compel companies to price uniformly. This seems less likely to (illegally) drive prices lower, and much more likely to raise prices across the board. Ignoring the demand side of the equation for a moment, my guess is that real estate, taxes, and other business costs are higher in Greenwich. This may not account for all, or even most of the price difference, but it is a factor.

Even here in Austin (where gas was less than $1.00/gallon a few years ago), there are quite noticeable differences in price in different parts of town. I try to fill up at a “cheap” station when possible. It’s the station’s right to set its prices, and my right to decide whether or not to fill up there.

p.s. Note that all the gas pricing tricks are based on the customer, because despite attempts to differentiate the product (“Chevron with Techron”, etc), people see all major brands as essentially the same. And when it comes to major refineries putting oil into pipelines, that’s true. A refinery puts a certain amount of a certain grade into the pipeline, gaining the right to extract an equal amount from the pipeline somewhere else. Not necessarily the oil they put in, though.

3 Comments

  1. benji

    Interesting post, but what makes you say people are not brand sensitive? I thought the same until recently, when I met someone who wouldn’t by Arco b/c “It’s the leftover gas from multiple different refineries”, and they wanted to buy from a “brand name” station

  2. Reuben Swartz

    You’re right– I think most people see the “major brands” as indistinguishable, followed by various other discount brands. I used to live near a gas station whose big, lit sign read “Major Brand Gas”. We kept waiting to see which major brand they meant, but that’s all the sign ever said. No one I knew bought gas there.

    I’ve known some people to not buy from a particular brand because of political or environmental concerns, but not because they thought the gas was truly better somewhere else.

  3. GMR

    The way I’ve read it, it seems that the zone pricing is what the wholesalers charge to local stations. So a Greenwich station has to pay more to the wholesaler than the Hartford station.

    Of course, each one of the gas stations doesn’t charge what they paid for it, but are going to instead mark up the price. The mark up is what they need to pay their guys, keep the windshield wash bucket full, pay rent, property taxes, and other overhead costs. Of course, the mini market may yield a little, and so might the garage, if there is one.

    Currently, distributors charge more to stations in Fairfield county than to gas stations upstate. One reason is that upstate gas stations near the MA border can’t compete as MA has lower gas taxes. The distributors therefore claim that stations along the border get a reduced purchase price so they can compete with MA stations who have lower taxes (however, this begs the question, how do gas stations that are further from MA compete with those that are closer to MA?).

    I am not sure if all distributors do this. I’d have a hard time believing this was the case: someone should have moved in and established an independent gas station or something! Of course, it might be next to impossible to get environmental clearance to build a new gas station.

    I’m very leery witht he legislators in Gartford deciding how private companies can run their affairs.

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