
Why Do Gas Station Prices Constantly Change? Blame the Algorithm - uptown
https://www.wsj.com/articles/why-do-gas-station-prices-constantly-change-blame-the-algorithm-1494262674
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Spooky23
The premise that gas stations are facing internet competition is ridiculous.

Equally absurd is "blame the algorithm". While they may use some fancy machine
learning, that pattern is pretty clear -- they gouge customers during peak
periods, and cut the price during slack periods.

The AI component is probably there more to deflect accusations of cartel-like
price fixing than any actual utility.

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viggity
you say "gouge" I say "increase supply to meet demand".

during/after Hurricane Katrina a couple of guys spent tens of thousands of
dollars ~$500 electric generators. Rented a truck and drove a long distance to
NOLA where they started selling the generators for $3000. They had willing
customers, but the police arrested them for "price gouging" and confiscated
the generators. Instead of having the option of paying for something that
people desperately needed, emotional politicians passed a law ENSURING that
people don't bust their ass to bring goods to market. How sad. EVERYONE is
worse off in that situation. EVERYONE could have been better off.

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lovich
How do you identify a situation like this where people might have been helped
by the "price gouging" vs something like a company running a festival where
they don't allow water to be brought in and you can only buy it from approved
vendors who increase the price massively? If there's going to be error one one
side or the other, I'd prefer it to be on the side that doesn't incentivize
company's to do things that hurt people.

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tdb7893
There was nothing stopping other people from buying generators and going down.
It's the possibility of competition that's important in my mind. I've come to
the conclusion that nothing protects consumers as much as competition

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lovich
ISP's have a possibility of competition but they don't. The possibility of
something happening can not be the end all for legislation

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rlpb
See
[https://en.wikipedia.org/wiki/Natural_monopoly](https://en.wikipedia.org/wiki/Natural_monopoly).
ISPs are in an objectively different situation from gas stations and the
supply of generators over a distance in a disaster situation.

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derefr
The thing with gas stations is, the gas has to come from somewhere. For
various reasons, oil companies are in a natural-monopoly position (or rather,
a natural _cartel_ position, that uses various branding tactics to discourage
the appearance of collusion—much like the deBeers cartel does for diamonds.)

With so much leverage over their direct customers, the oil cartel isn't
interested in _allowing_ gas stations to eat into their profit margin. So they
buy them. Thus, gas stations become another facet of the cartel.

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protomyth
Buddy ran a gas station in the cities for a while and within reason and the
law (MN has some rules), he would mostly change his price based on the price
of a station near him. That generally went with the price he should be
charging based on what they were buying it for. I sometime think he just
thought price wars were fun. I guess having an electronic price sign tends to
embolden you when your competitor still has to flip it manually.

The reservation gas station prices theirs at $0.05 lower than the next town
overs gas. They all pretty much buy it at the same price and the profit is on
the inside of the store not the gas pump.

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slantyyz
A friend of mine bought a gas station franchise for a major oil company (in a
very large city, I might add), and he'd basically do the same. His price
intelligence system is pretty low tech - it involves him hopping in a car and
seeing what his local competitors are charging.

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bryondowd
I used to work at a Wawa gas station where the manager would occasionally send
someone out to check the station down the street and make sure we were still
undercutting them by a few cents. I assumed that was pretty standard in the
industry.

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bmelton
Which is funny to me, because Wawa has a few, _very effective_ means of
ensuring customer loyalty.

Between state-minimum priced cigarettes (for smokers), fee-less ATMS, the
awesome, cheap coffee bar, and pretty darn reasonable rates on their hot,
prepared food items, I usually prioritize going to Wawa in every circumstance
possible, even if gas prices aren't the absolute lowest.

I remember when I moved to the Maryland area, hearing everybody rave about
what sounded like the dumbest named convenience store I'd ever heard of, and
how convinced I was that I'd never fall into that cult of weirdness, but they
proved to be too convenient in too many ways for me to ignore them, and now
I'm a devoutly loyal Wawa customer.

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toomuchtodo
In Florida. Absolutely love Wawa. They're wonderful.

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gefh
I'm trying to decide whether this quote is a deep insight into efficient
pricing or consultant-level cognitive dissonance and self-justification: “This
is not a matter of stealing more money from your customer. It’s about making
margin on people who don’t care, and giving away margin to people who do
care,”

Leaning towards the latter.

~~~
rcar
This sort of thing shows up in lots of different pricing mechanisms. There's
no structural reason why plane or train tickets should be cheap far in advance
and then go up in price a lot as the departure date nears; it's just that
people who are willing to book early are going to be cost-conscious and might
compare prices on multiple options while those late might care more about
convenience than price (e.g., people traveling on their company's dime).

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Eridrus
Doesn't buying plane tickets in advance let airlines plan capacity better?

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gumby
They can do some capacity modulation through pricing, sure, but their
historical DBs have a large enough 'n' (American Airlines SAABRE was the first
big database application and drove database design) that they can predict
pretty well. Which is why the bumped-due-to-overbooking is pretty low.

BTW I think it's appalling that overbooking is allowed in this age of
nonrefundable tickets. You've paid for the seat; whether you sit in it is your
business. In the old days of regulation most tickets were fully reusable, and
overbooking harks back to that time.

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hinkley
For many airlines, you can re-schedule your non-refundable ticket for another
day for a fraction of the cost of the original ticket. You still have to fly
on that airline at some point to recoup any of the value of the ticket, but it
can be done.

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Declanomous
Seems like an interesting article, unfortunately I can't access it, even using
the Web link in a incognito tab.

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lukeinator42
here's a link:
[http://archive.is/2017.05.08-172743/https://www.wsj.com/arti...](http://archive.is/2017.05.08-172743/https://www.wsj.com/articles/why-
do-gas-station-prices-constantly-change-blame-the-algorithm-1494262674)

~~~
Declanomous
Thanks! That is a really interesting article.

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theprop
I wonder if this drives people to Costco? I've felt a major reason people pay
to be a member is that if you buy all your gas there, you save in a year
roughly the cost of your membership.

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Cerium
Data point: Costco outside my work has gas for $2.61. Across the street is a
gas station selling for $2.98. In my experience I save about $4-5 per tank
buying at Costco. I fill up about every two weeks, so I save about $100 per
year on gas.

If you are new to Costco you will typically save nearly the full membership
cost on your first trip, stocking up on basic house supplies.

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JustSomeNobody
This. And it's very convenient to run in and pick up some necessities after.

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kevin_thibedeau
It's pretty blatant when any global event impacting future oil supply results
in immediately raised pump prices for gas.

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mikeash
I assume you want them to keep prices low until the more expensive gas
actually works its way through the supply chain to them. Should they also keep
prices high for that period after oil prices drop?

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lovich
Isn't that what happens? Back when I owned a car, some event would be in the
news that restricted oil supply and the next day the prices would have jumped
up. On the inverse, when something like OPEC announcing they would increase
production happened that increased the oil supply, prices would not drop for
days or weeks. I'm sure that's a lot of anecdotal evidence without the full
picture, but there iss no reason for them to drop the prices if the demand is
still there. Its the same reason why software is more expensive in Australia
when there is no increase in difficulty in distributing it there. The
companies charge more because they can

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mikeash
I think there's some lag, but not as long as the supply chain takes. I'm not
sure, it's been a couple of years since I've had to pay attention to gas
prices myself.

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vernie
I'd much rather blame whoever decided to rely on "the algorithm".

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mjevans
As a proposed legislative solution to this. Limit the resolution of prices
consumers face. E.G. Only allow the price to change at 2AM daily.

