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Gasoline Price Collusion

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  • Brooks, AB
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    In 2006, I kind of between life adventures and needed a little job to pass some time and keep my bank account on the positive side. So I took a job as a gas station attendant for a few months. It was interesting to watch the dynamics of gasoline retailing.

    The station I worked for was the last of the dinosaurs from the 1960s. Full service and a marginal convenience section. We were selling about $5000 of gas a day, and maybe another $500 in confections. The store was earning a little profit, so the doors were kept open.

    We had two customer groups. The first is the general public, especially those customers who preferred someone else to handle the nozzle. The second were employees of big companies. They were bringing their company pickup trucks to be filled every day or every second day. They put their "points" on a personal card. Given their purchase volume, they could earn many points for their own use. The company paid for the gas---and indirectly the points.

    Everyday we had two reports to call into head office. First was the prices the station 50 meters away was charging for their gas. Second was the tank levels.

    My employer had a business model to be a little bit more expensive than the competition. It was interesting to see our sales volume with the price differential between us and our competitor. When the prices were equal or we were $0.01 a liter higher, we got our usual sales. When we were $0.02 higher, we would notice a significant loss of sales. When we were $0.03 a liter higher, the general public stopped coming in. Only the point-earning employees showed up.

    I often wondered why my employer chose to be competitive or $0.03 a liter higher. Then I got to thinking: "It's all in the tanker trucks!"

    A B-train tanker truck costs about $750,000. Hiring a driver is another $40 to $50 an hour. Cost of keeping the truck on the road is about $150 a hour. In other words, the cost of bringing a tanker truck to deliver fuel was probably more than keeping this antiquated gas station operating.

    And tanker trucks and drivers are not something the company can easily find. When the truck is in for repairs or the driver needs a day off, some gas stations are not getting deliveries. When a gas station is unlikely to get a timely delivery, the price is raised. While sales decrease, profits for the station remain the same as the profit per liter is higher. And with a reduced sales, the station does not have the risk of running out of fuel----and then really annoying its customer base.

    There is a science called logistical engineering. I'm pretty sure the pricing decision for our gasoline was made on whether a tanker truck could make a delivery in the next two days, with the objective of never running out of fuel at the station. The engineer use the competitor's posted price and our tank levels to estimate sales for the day at different prices. Then he chose the price that commanded the most profits--while not running out of fuel.

    The amazing thing is when I try to explain this logistics to well educated people, they refuse to give it any credibility. They seriously believe that oil company executives meet every day to collude on gasoline prices--and we, the gas-purchasing public--have no say in the price.

    I would say those people who stayed away when our price was $0.03 a liter higher were very much having their free-market say.

  • Liberal Democrat
    Democrat
    Kenosha, WI
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    Why is ham $2.99 a pound in T or C around Christmas time? Transportation costs. The same ham is 99 cents a pound in Milwaukee, WI at the same time. Obviously more pigs in Wisconsin than there is in New Mexico.

    torcnm.org/

    en.wikipedia.org/wiki/Truth_or_Conseque...

  • Brooks, AB
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    Dockadams Wrote:

    Why is ham $2.99 a pound in T or C around Christmas time? Transportation costs. The same ham is 99 cents a pound in Milwaukee, WI at the same time. Obviously more pigs in Wisconsin than there is in New Mexico.

    torcnm.org/

    en.wikipedia.org/wiki/Truth_or_Conseque...

    It would be interesting to have a study of how much of the cost of certain product is indeed transportation costs. I believe the bean counters in the various companies already know this answer.
  • Liberal Democrat
    Democrat
    Kenosha, WI
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    Transportation costs are a trade secret. You cannot get a quote for freight shipping unless you're either

    A. a transportation company using trucking software or apps.

    B. a producer making cheese, milk, tires, car parts, etcetera.

    Try calling Schneider, Roadway, Yellow, or any trucking company to get a quote.

  • Brooks, AB
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    Dockadams Wrote:

    Transportation costs are a trade secret. You cannot get a quote for freight shipping unless you're either

    A. a transportation company using trucking software or apps.

    B. a producer making cheese, milk, tires, car parts, etcetera.

    Try calling Schneider, Roadway, Yellow, or any trucking company to get a quote.

    Hmmm. We don't have this problem in Canada. Trucking companies are always bidding each other to ship goods across the country.