Los Angeles Times: Zones of Contention in Gasoline Pricing_
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
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
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
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