Knowledge Problem

Michael Giberson

In my just published post on zone pricing, I noted a newspaper story from New York which suggests that the recently enacted ban on zone prices was equalizing gasoline prices, at least around Rochester. To quote myself:

Meanwhile, in neighboring New York, a newspaper story from suburban Rochester suggests that the state’s new zone pricing ban is helping to equalize prices between formerly high priced and formerly low priced stations. (The story doesn’t report whether prices have been equalized mostly or entirely by reductions in prices in the formerly high-priced areas or by increases in prices in formerly low priced areas.)

Then I began to wonder what data suggests on the subject of that parenthetical remark.

AAA’s Daily Fuel Gauge Report presents average prices nationwide and by metropolitan area.  Here are the current (May 26, 2009) average national prices:

	Regular	Mid	Premium	Diesel
Current Avg.	$2.425	$2.575	$2.667	$2.320
Yesterday Avg.	$2.424	$2.575	$2.666	$2.324
Week Ago Avg.	$2.314	$2.458	$2.546	$2.292
Month Ago Avg.	$2.052	$2.179	$2.257	$2.265
Year Ago Avg.	$3.936	$4.181	$4.330	$4.765

So nationally, prices are about $1.50 lower than a year ago, but up about 40 cents from a month ago.

What about in New York? The AAA Fuel Gauge Report offers average prices for four categories (regular, mid-grade, and premium gasoline and diesel) for eight metropolitan regions in New York (Albany-Schenectady-Troy; Binghamton; Buffalo-Niagara; Nassau-Suffolk; New York; Rochester; Syracuse; and Utica-Rome). I first compared current prices in each of the eight metro areas to current national averages, and in every case the current average prices in New York are higher than the comparable current national average price. In itself, this is not surprising, as the prices include taxes and New York state has some of the highest state gasoline taxes.

Second, I compared year-ago prices in each metro area to year-ago national averages (conveniently, the zone pricing ban was implemented about six months ago, so current prices are six months after the ban, while year-ago prices are six months prior to the ban. Seasonal effects should be similar in May 2008 and May 2009). Again, presumably due to above-average taxes, every New York average price is higher than the corresponding national average price. Again, not surprising.

Third, and maybe this is interesting, every New York metro price for each of the four categories reported (regular, mid-grade, premium, and diesel) is higher now relative to current national averages than they were a year ago. That is to say, for example, a year ago Rochester regular prices were 2.4 percent higher than the national average, and now they are 4.3 percent higher. Year-ago Syracuse premium prices were 1.1 percent higher than the national average, current prices are 4.2 percent higher. Year-ago Nassau-Suffolk diesel prices were 6.8 percent higher than nationally, current diesel prices are 11.9 percent higher. All eight metro locations, for all four fuel categories, a total of thirty two data points all pointing to the conclusion that average gasoline prices in New York state are higher today compared to a year ago.

Now let’s look at neighboring Connecticut. The AAA Fuel Gauge Report offers average prices for the same four categories in four metropolitan areas (Bridgeport; Hartford; New Haven-Meriden; and New London-Norwich). Connecticut actually has slightly higher gasoline taxes than New York, so it is not surprising that current and year-ago prices for every one of the four metropolitan areas and four categories are higher than the national averages.

For each of the three gasoline prices (regulation, mid-grade, and premium), in each of the four Connecticut metropolitan areas, the prices are lower relative to current national averages than they were a year ago. That is to say, for example, a year ago in in Bridgeport, regular gasoline prices were 8.7 percent higher than the national average, but now they are down a bit to 7.9 percent over the national average. Similarly, year-ago premium prices in New Haven were 7 percent over the national average, but now are “just” 5.7 percent above national averages. A total of twelve data points in Connecticut, all indicating the gasoline prices in the state are lower now compare to a year ago, relative to national average. (On the other hand, diesel prices in each of the four areas in Connecticut are higher now, relative to national prices, than they were a year ago – just the same as in New York.)

This analysis is far from conclusive. Comparing simple state-wide averages to national averages will obscure much interesting information about the potential impact of a zone pricing ban. Maybe this effect is produced by differences in state taxation, or some other change in New York that didn’t also affect Connecticut. But it is at least suggestive that gasoline prices in New York have increased relative to the national average after the zone pricing ban even as prices in a neighboring state fell relative to the national average. This simple, readily available data suggests that if prices are now more uniform across the state, it has come more from higher prices in formerly low priced areas than from lower prices in formerly high priced areas.

Michael Giberson

From the website of Livvy Floren, Greenwich state representative and Assistant Republican Leader in the Connecticut House of Representatives, “Greenwich Delegation Calls for Ban on Zone Pricing of Gas“:

HARTFORD- Greenwich State Reps. Livvy Floren (R-149), Lile Gibbons (R-150) and Fred Camillo (R-151) are dismayed the state legislature refuses to address the issue of gasoline zone pricing which forces Greenwich to pay the highest gas prices in Connecticut.

“Zone pricing comes down to equity across the state. Once the gas is in the pipe, prices should be equal since there is no marginal or incremental delivery cost. That is all we are asking for with this ban,” said Rep. Floren….

Rep. Fred Camillo who is a freshman legislator from Cos Cob said he wonders why the legislature refuses to debate this bill. “It’s an issue of fairness, Fairfield County legislators, both Republican and Democrat, stand united against this un-American practice. Our local businesses bear the tough burden of selling the most expensive gas in the state with out any choice and it hurts their bottom line selling other products as drivers gas up out of town.”

An “un-American practice”? What is un-American about allowing private companies to set their own prices?

In any case, if I were a legislator from elsewhere in the state, I’d be leery about a bill that likely tend to raise average gasoline prices in my district.

(At least that is the implication of this economic study of a related proposal in California, conducted by Michael Keeley and Kenneth Elzinga. Other analyses have tended to find the effects of a zone pricing ban to be either harmful or at best ambiguous.  See related posts and especially this one at Knowledge Problem for discussion.

Do you know of zone pricing analyses not yet mentioned in these posts? Let me know in the comments.)

Meanwhile, in neighboring New York, a newspaper story from suburban Rochester suggests that the state’s new zone pricing ban is helping to equalize prices between formerly high priced and formerly low priced stations. (The story doesn’t report whether prices have been equalized mostly or entirely by reductions in prices in the formerly high-priced areas or by increases in prices in formerly low priced areas.)