GasPriceZones - Los Angeles Times Zones of Contention in...

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Los Angeles Times: Zones of Contention in Gasoline Pricing_,1,6659437.story?coll=la- headlines-business WHAT'S DRIVING GAS PRICES Zones of Contention in Gasoline Pricing Refiners charge each dealer a different rate for the same fuel. They say it's fair, but critics contend the practice helps them boost profits and suppress competition. By Elizabeth Douglass and Gary Cohn Times Staff Writers June 19, 2005 Second in a Series On a recent Wednesday, 72-year-old veterinarian Charles Hendricks filled up his Mercury Grand Marquis at a Chevron in west Anaheim. On the other end of town, 22-year-old sandwich store manager Ryan Ketchum gassed up his Nissan Sentra at a Chevron in Anaheim Hills. Both men bought regular gasoline. Both pumped the gas themselves. But there was one important difference: Hendricks paid $2.399 a gallon, whereas Ketchum paid $2.539 — 14 cents more a gallon for the same Chevron gas. Such price variations may seem odd, but they are not unique to Anaheim. On any given day, in any major U.S. city, a single brand of gasoline will sell for a wide range of prices even when the cost to make and deliver the fuel is the same. The primary culprit is zone pricing, a secret and pervasive oil company strategy to boost profits by charging dealers different amounts for fuel based on traffic volume, station amenities, nearby household incomes, the strength of competitors and other factors. It's a controversial strategy, but the courts have thus far deemed it legal, and the Federal Trade Commission recently said the effect on consumers was ambiguous because some customers got hurt by higher prices while others benefited from lower ones. To be sure, other industries vary prices by area too. Supermarkets, for instance, price the same brand of bread or cheese differently in different neighborhoods. But gasoline price patterns provoke a response that bread can't match, partly because other commodities don't fluctuate as wildly as gasoline does and their prices aren't posted by the side of the road. Oil companies say the practice allows them to adapt to local market conditions by, for example, lowering prices to dealers who face stiff competition from high-volume sellers such as Costco Wholesale Corp. Most California gasoline retailers, however, declined to discuss their pricing practices, referring questions to industry groups. "It is a perfectly acceptable form of pricing," said Joseph Sparano, president
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of the Western States Petroleum Assn., a Sacramento-based industry trade group. Zone pricing, he said, "is a way for companies to price fairly in different areas." Said Trilby Lundberg, who produces the widely quoted Lundberg Survey of gasoline prices: "The flip side … is that locational pricing allows for prices to be lower in some areas than others." Such explanations haven't appeased consumer groups, lawmakers and state government critics such as Connecticut Atty. Gen. Richard Blumenthal, who has
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This note was uploaded on 10/12/2008 for the course ECON 1 taught by Professor Bergstrom during the Spring '07 term at UCSB.

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GasPriceZones - Los Angeles Times Zones of Contention in...

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