Why Do Gas Station Prices Constantly Change? Blame the Algorithm
wsj.com
wsj.com
Equally absurd is "blame the algorithm". While they may use some fancy machine learning, that pattern is pretty clear -- they gouge customers during peak periods, and cut the price during slack periods.
The AI component is probably there more to deflect accusations of cartel-like price fixing than any actual utility.
during/after Hurricane Katrina a couple of guys spent tens of thousands of dollars ~$500 electric generators. Rented a truck and drove a long distance to NOLA where they started selling the generators for $3000. They had willing customers, but the police arrested them for "price gouging" and confiscated the generators. Instead of having the option of paying for something that people desperately needed, emotional politicians passed a law ENSURING that people don't bust their ass to bring goods to market. How sad. EVERYONE is worse off in that situation. EVERYONE could have been better off.
At least, that's the theory :-)
With so much leverage over their direct customers, the oil cartel isn't interested in allowing gas stations to eat into their profit margin. So they buy them. Thus, gas stations become another facet of the cartel.
Until the phone companies decided to get out of the business of supplying landlines, there was a competitive market for both dialup and DSL service in the US. In my area, I used to buy EarthLink cable service because they offered higher upload speeds.
In the UK, many people can choose one of a dozen ISPs.
That's the real reasoning behind Ajit Pai and his pals in the industry hatred of the Title II regulatory classification of internet access. They want to head off local loop unbundling (which requires companies to share local infrastructure at non-discriminatory rates) and ultimately re-create the old Bell Telephone monopoly.
Companies like Verizon and Comcast are incredibly inefficient and poorly administered organizations. If meaningful competition were possible, they would be slaughtered in the marketplace.
In your example, the real problem isn't that they're charging artificially high prices for water; it's that they're not allowing water to be brought in and then surprising attendees with high prices.
If you want to fix that problem, fix it there. You could either require people to be allowed to bring water in (for obvious public health reasons, for example), or require the event organisers to prominently include the price of water in any advertising that includes the event ticket price, or require them to provide free water (again for public health reasons) and include the cost of supplying that in the ticket price.
I bet the model here is that the oil company owns the gas and the retailer sells it on consignment. The oil guys control the price and care about making investments to chisel pennies, as they have hundreds of gas stations. They can't steal too many pennies though, or the coffee and hotdog business inside will falter.
Re: your disaster profiteer use case, I have little sympathy. I'm sure those guys were doing things like collecting Lousiana sales tax, etc that everyone else was going to do.
Oh, but there is! FTA:
>"One client called to complain the software was malfunctioning. A competitor across the street had slashed prices in a promotion, but the algorithm responded by raising prices. There wasn’t a bug. Instead, the software was monitoring the real-time data and saw an influx of customers, presumably because of the long wait across the street."
Maybe the only way this gas station can stay in business (add supply) is to charge congestion premiums.
The reservation gas station prices theirs at $0.05 lower than the next town overs gas. They all pretty much buy it at the same price and the profit is on the inside of the store not the gas pump.
Between state-minimum priced cigarettes (for smokers), fee-less ATMS, the awesome, cheap coffee bar, and pretty darn reasonable rates on their hot, prepared food items, I usually prioritize going to Wawa in every circumstance possible, even if gas prices aren't the absolute lowest.
I remember when I moved to the Maryland area, hearing everybody rave about what sounded like the dumbest named convenience store I'd ever heard of, and how convinced I was that I'd never fall into that cult of weirdness, but they proved to be too convenient in too many ways for me to ignore them, and now I'm a devoutly loyal Wawa customer.
Had to look it up before realizing it's actually the name of a company in the US.
They came up with some baseline rockbottom pricing base on how much they paid for the gas.
They'd try to price it based on competition. But you can't just price it at the competition. You have to consider other factors. If the station accross the street has a better location (easier access to the road is common, in a parking lot with other stores) then you have to be lower to get business. People will cross the street for 2 cents, but they won't for no difference.
If you have a big spread in the rock bottom and competition, it might be worth lowering to gain more business.
But you never made much money on the fuel itself. You made the profit on cigarettes, lotto, soda, and snacks. The company made more money with low gas prices. Sounds odd. But people get angry at the gas station owners when prices is high, even though they are taking at most 10 cents a gallon profit, usually way less. So they are less likely to spend money at the convenience store.
The company ended up selling all the stations off. You can't run them like a business now that most are run by families without steeply discounted labor.
My father in law did that for 10 years. Never turned a profit, ended up handing the station back to the franchisee for free rather than continuing.
It's a cutthroat business. I wouldn't want to be a part of it.
Leaning towards the latter.
BTW I think it's appalling that overbooking is allowed in this age of nonrefundable tickets. You've paid for the seat; whether you sit in it is your business. In the old days of regulation most tickets were fully reusable, and overbooking harks back to that time.
> Doesn't buying plane tickets in advance let airlines plan capacity better?
was that whatever airlines are doing to plan their capacity doesn't seem to work very well. In support of this vague claim I adduced a news incident, very very snarkily (for which I apologise), but honestly in a spirit of discourse rather than simply of attention grabbing.
https://en.wikipedia.org/wiki/Supply_and_demand
The people setting the prices on expiring goods are gambling on where the supply and demand curves will be, and they're probably wrong so they go up and down. Next time you reserve a hotel room, check the prices right before your cancelation window expires. There's a good chance the room prices have dropped.
Edit: Also there might be some price discrimination involved. Since each buyer values goods differently, it is most optimal for sellers to charge the most each buyer is willing to pay, and it could be true that those seeking last minute flights are business travelers willing to pay more (or those with emergencies willing to pay more). Also works with grocery store coupons and discount codes, those whose time isn't worth looking for coupons won't bother.
E.g. if your tank is empty, you're willing to pay an exorbitant price, but you certainly won't be happy about it.
So, I think it depends a little on the actual implementation. If this really is about giving people who are very price sensitive a discount I don't think people will mind a lot, but if these algorithms learn to gouge people who are in a predicament, they won't be happy.
Me? When I hit a quarter tank I go fill up. It's a fuel hungry sports sedan that runs on premium, I resigned myself to the fuel expenses before I even purchased the car. I honestly don't even look at the prices because it's just really not worth the time to worry about for me.
In the case of musicians, most of them undersupply and underprice their tickets, which means that there's a market for reselling. For a variety of reasons, they keep prices low so as to ensure a sold out venue as best they're capable, and when prices are lower than they ought to be, ensures a market for resellers. Resellers help offload the risk to the original sellers, but if the sellers were capable of maximizing profits in the first place, buyers would benefit by not having to deal with the perils associated with gray market sales. Also, the artists / venue / middlemen would make more money.
http://www.aei.org/publication/ticket-scalping-as-an-efficie...
This is much, much more true for fuel in a populated area, than it is for other products where the alternatives are in fact not equivalent, despite being priced similar (e.g. airplane tickets for the same destination are seldom equivalent, even if there are several choices; they differ meaningfully in departure times, airports, airlines, layovers).
In reality, most people are used to constant price fluctuations in the price of products such as motor fuel and airplane tickets, much more so than they are used to fluctuations in the price of staple foods at the supermarket, so most middle-income people (and up) don't go out of their way to find a different fuel station if the price is just a little bit higher, as both the cognitive effort of pondering to switch, and the physical effort of performing the switch often outweighs the savings.
For very price-sensitive people, they are (predictably) screwed by this, as they have to run around more, or come armed with more data (price apps) or expend effort on discounts (coupons, driving to the cheapest location, holding off on purchases in the hope that the price drops) to save money.
If you are new to Costco you will typically save nearly the full membership cost on your first trip, stocking up on basic house supplies.
The biggest differences in price now are between people who use gas as a loss leader (wholesale clubs) and a chain that prices $0.05-0.10 more because the local supermarket subsidizes the gas.