Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, November 26, 2005

Gasoline Pricing Puzzle

For the past two weeks, Mac' Milk, a variety store in our town (with hi-tech gas pumps) has been selling gasoline for about 7 cents/litre less than the other stations in town. The price at this station has been about 10 cents/litre below that of gas stations in other towns within a fifteen minute to half-hour drive from here.


They always had cars at their pumps. There were sometimes short line-ups (which grew longer when pay-at-the-pump wasn't working). There were also stories that one of the other gas station proprietors in town called the manageress of this station to encourage them to raise their price [which, most likely, would be illegal, especially if successful].

When I asked someone in town why they persisted in charging such a low price, they said,
The woman said the company told her to keep the price low. They want to increase the gallonage.
Does that make sense? Why would senior managers of a major variety store chain (Mac's Milk) want to increase its "gallonage" of gasoline at one particular outlet? And why didn't the other gasoline stations in town follow their low price? And why did people fill up at the other stations at all?

Whatever the reason, I kept the top half of the tank full while this odd pricing strategy was occuring.
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