Why do gas stations on opposite sides of the same street have different prices?
(KTLA) – As gas prices remain high across the country, savvy consumers are often looking for the best deal to get the most of their hard-earned cash. Sometimes you can find the best price just by crossing a lane or two.
Why do gas prices vary so much from gas station to gas station?
Experts say it comes down to a few key factors: taxes, wholesale prices, and profit margins.
So let’s start with taxes. According to NACS, the Association for Convenience and Fuel Retailing, all gas retailers are required to collect the state gas use tax, which currently stands at about $0.18. States also have their fees and taxes. In California, the tax is up to $0.86. According to NACS and the American Petroleum Institute, Alaska has the lowest state gasoline taxes at about $0.33.
But gasoline taxes can also vary from city to city. Gas stations might be just down the street from each other, but across city limits, and those cities might have different taxes on gasoline.
But the main reason for the differences, experts say, is margins and competition.
Gasoline dealers have to buy their gas somewhere, and wholesalers have their prices. For gas stations, a big factor in pricing depends on the brand of gasoline they sell. Chevron is priced differently than Exxon, which is priced differently than Shell. Some are more expensive than others, and the customer pays for the extra cost since gas stations don’t make huge profits on every gallon sold. Many consumers are willing to pay more for certain brands because of reputation or manufacturer recommendations.
And the higher quantity of gasoline sold means the gas station is likely to get a better wholesale price, making it easier for them to sell gasoline at a lower retail price.
Another thing to consider: does the gas station have a supermarket on site? Most gas stations make small profits from gas sales, but those with convenience stores make more than half of their total income from the items sold there, NCAS says.
Gas stations with stores tend to price their gas lower, knowing they will make up the difference in convenience store sales. The lower prices tempt people to spend money in the stores where the margins are much more profit friendly for the business owner. So buying a large soda and some sunflower seeds is likely helping keep those prices down.
As in most industries, the main reason for the price differences is probably competition.
If a gas station without a convenience store is close to a gas station that has one, it may be beneficial to adjust those prices accordingly. When a gas station is not branded, it has its own set of challenges that are different from branding, including fewer discounts on wholesale gasoline. A store that is awkward to get to may need to lower its prices to attract customers who would normally go to the competitor across the street, which isn’t as hassle to get to.
There are numerous reasons why a gas station can sell gas cheaper than its neighbor. Ultimately, it boils down to a complicated equation for business owners looking to maximize profits while testing what the consumer tolerates and prioritizes.
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