Gas prices are rising so quickly, in response to the situation in the Middle East and do disasters like Katrina, that university professors are researching how to save gas. However, gas prices tend to fall much more slowly, and experts say this is partly the fault of consumers.
How can this be when we feel like the victims? But a recent study suggests that while consumers hunt for the lowest possible prices when costs are rising, they don’t shop around as much when prices start falling, but tend to go to the nearest gas station or the one where they can use their gas credit card. The result is that gas stations don’t have much incentive to drop prices quickly when wholesale costs drop.
“If a consumer sees that gas prices at one station have fallen since the last time he bought gas, he may not look to see if there are even lower prices,” says economist Matthew Lewis.
In fact, when gas prices are going up, and consumers complain the most, gas stations are actually making the least profit on sales. Profits on gasoline are generally up to five times higher when prices are falling, and consumers are no longer so upset about the prices they have to pay at the pump.
Profit margins vary widely as prices increase and decrease. In periods when gas prices rise quickly, the average profit margin for stations is about 4.8 cents per gallon. But when prices are going down quickly, profits average 29.9 cents per gallon. When prices change little, profits average about 13.4 cents per gallon.
Lewis says, “For the most part, when there are increases in gas prices, it is because oil refineries can’t keep up with demand. In those cases, it is the refineries that are profiting most from price increases. When customers aren’t searching, it doesn’t do any good for one station to lower prices further than their competitors because it may not even attract many additional customers. Drivers aren’t looking for a better price.” Lewis found that gas prices fluctuate the most in California, where they are also usually higher.
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