Gasoline prices in New York three weeks after the zone pricing ban

Michael Giberson

Gasoline prices are making the headlines across the country (these headlines found via Google News):

We could probably go state-by-state across the country finding these stories, with one exception: New York. (The state in dark red in the map below.)

NY_gasoline_price_US_map_2008Dec

Three weeks after the zone pricing ban went into effect, the New York gasoline price headlines are complaining that prices are still too high, even if a little lower than before.

From the easternmost tip of Long Island, New York, the Southhampton Press reports: Gas prices still inflated on East End.

Three weeks after a new state law prohibiting zone pricing of gasoline went into effect, gas stations on the South Fork are still charging more than anywhere else on the East End.

Though the price for gasoline has dropped precipitously in recent weeks, drivers who regularly leave the Hamptons are still finding that gasoline costs more than 25 cents more per gallon here than it does just 10 miles west in Riverhead, despite a law that went into effect on November 24 that was designed to outlaw charging more for gasoline in supposedly wealthy areas.

Part of the problem, according to the article, is that companies that are vertically integrated – with no wholesaler to retailer transaction – are exempt.

From the somewhat less-wealthy west end of the state, The Buffalo News reports: Western New York’s gas retailers making up for lean time.

From Jamestown, New York, in the state’s southwest corner, The Post-Journal reports: Higgins, Gas Retailers Disagree: Excessive Profits Not Cause Of High Prices, Local Service Stations Say.

The “Higgins” in the headline is Brian Higgins, the local member of Congress. Higgins has called on “all 279 gas retailers in the region to voluntarily reduce gas prices” according to WBFO News, and “if they fail to do so, Higgins says they could face potential enforcement or penalties from the Federal Trade Commission or state Attorney General.”

From The Post-Journal‘s article:

As the price of gasoline continues to drop around the nation but at a much slower rate in Western New York, Higgins is working to find out why that disparity exists. He is calling on the Federal Trade Administration to aggressively investigate the matter, though retailers object to the blame he is placing on them.

”Every extra penny in gas prices paid by Western New York consumers has an enormous ripple effect on an already distressed economy,” Higgins said. ”This region must again stand up for ourselves and demand justice on this matter.”

A similar effort at the state level is targeting wholesalers. A state law recently went into effect banning zone pricing, a practice reportedly employed by the gasoline industry to artificially inflate the price of gasoline in certain regions if companies think the markets will bear it.

Just based upon a handful of newspaper stories that suggest prices are dropping faster elsewhere, outside of New York, immediately after the zone pricing ban went into effect in the state, I wouldn’t jump to the conclusion that the zone pricing ban was to blame. Besides, as the Southampton Press article points out, the law has a big exemption for vertically integrated firms (and the Buffalo News story points out that the western New York region features just one large vertically integrated firm).

But I do recall that the Cary Deck and Bart Wilson economics research on zone pricing bans suggests that a ban would tend to increase retail transaction prices in more-competitive areas, but have little effect on transaction prices in less-competitive areas.

So I’m not jumping to any conclusions, I’m just continuing to watch New York gasoline prices to see what effect, if any, the zone pricing ban will have. As I put it last time I blogged on the issue: Will the results [of the zone pricing ban] affirm policymakers’ hopes or economists’ analyses?


3 thoughts on “Gasoline prices in New York three weeks after the zone pricing ban

  1. I’m shocked, shocked to see this outcome … Seriously, while it’s a preliminary observation, it is remarkably consistent with the Deck and Wilson experimental analysis.

    I’ve been stunned at the relative rapidity of the price decline in Chicago. Prices are probably still following a “rockets and feathers” pattern in the sense that the price decline is still slower than the price increase was, but it’s faster than any other price decline I’ve ever seen.

  2. The price drop is clearly not of the “feathers” variety, at least eyeballing the GasBuddy charts, especially for Chicago.

    A few guesses:
    *Oil and gasoline prices have been so much in the news that prices have remained salient to consumers even as they fall, so consumers pay more attention (i.e. do more search).
    *Prices have fell so quickly, that consumers expect search to pay off, and so do more searching than typical during price declines.
    *Or, contrary to what I just said, the price drop is “feathering”. After all, the Buffalo News article cited above does suggest that gross retailer margins are up from earlier this year – from 11.3 cents in the first half of the year nationwide, to over 26 cents on average since July 15. (For Buffalo, margins were slightly smaller than the nationwide average for the first half of the year, at 9.8 cents, and much higher after July 15, at 43.7 cents.)

    In fact, I’ve talked myself out of the remark at the top of the comment. Higher margins imply reduced consumer search and therefore feathers. They just happen to be very, very heavy feathers.

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