Gasoline Price Changes - Federal Trade Commission

CHAPTER 5. STATE AND LOCAL POLICIES, AS WELL AS THE EXTENT
OF VERTICAL INTEGRATION AMONG FIRMS, CAN
AFFECT RETAIL GASOLINE PRICES.
I. LOCAL FACTORS CAN AFFECT RETAIL GASOLINE PRICES.
This chapter discusses factors at the local level that can affect the price at the pump.
Prices in gasoline retail markets, as in other retail markets, depend on local supply and demand
factors, such as the number and location of retail competitors, how easy it is to enter into
retailing in a given area, local regulatory conditions, and state and local taxes. Unique regulatory
factors in the petroleum industry include state statutes that ban self-service gasoline. In addition,
the degree of vertical integration between refiners and retailers, and certain vertical practices,
such as redlining and zone pricing, may affect gasoline prices. The interaction of all of these
factors influences local gasoline prices at the pump.
A. Other Things Being Equal, Retail Gasoline Prices Are Likely To Be Lower
When Consumers Can Choose, and Switch Purchases, Among a Greater
Number of Gas Stations.
Certain communities sometimes seem to have consistently higher or lower gasoline
prices than nearby areas. Such persistent price differences may stem in part from differences in
the number and density of gasoline sellers in different communities. The number and density of
gasoline sellers in various communities reflect differences in local supply and demand
conditions, but local regulatory conditions also affect the number and density of local gasoline
sellers. Studies suggest that, when consumers have more nearby gasoline sellers to choose from,
prices tend to be lower as the sellers compete for consumers’ business.
For example, price surveys revealed that retail stations in Los Angeles sold gasoline at
generally lower prices than stations in San Diego or the San Francisco Bay Area. To understand
this phenomenon, one study examined whether a higher density of gas stations in Los Angeles
might explain these persistent geographic price differences. 1 See Figure 5-1.