From the Hartford Courant (May 11, 2009):
A bill in the General Assembly that would force gasoline wholesalers to charge the same price to retail dealers across Connecticut would likely raise the price of fuel for most motorists and make the market less responsive to competition.
Legislation to ban so-called zone pricing has been tried a number of times. The ban’s drawbacks are far outweighed by the advantages of allowing the market to continue working as it already does.
“Zone pricing” is the practice of gasoline wholesalers setting prices for sale to gasoline retailers by area, based upon a projected ability of the area to support higher or lower prices. While specific practices vary by wholesaler, typically incomes in the area and the level of competition between retailers would be taken into account as wholesales select the price it wishes to charge. It is asserted that zone pricing harms retail station competitiveness and leads to higher retail prices.
Over the past several years zone pricing bans have been often debated in Connecticut and elsewhere. Numerous points have been made by both proponents and opponents of zone pricing bans. Until recently the evidence for and against zone pricing has been primarily theoretical, or experimental, or based on inferences from similar practices in other industry.
But last November neighboring New York implemented a law (partially) banning zone pricing. So my advice to the people of Connecticut is that they continue without a zone pricing ban a little longer, and commission a few economic studies of the effects of New York’s zone pricing ban instead. Why not find out how this idea actually plays out in the real world?
Better to spend thousands of dollars on economic studies than make a million dollar mistake.
Previous zone pricing posts on Knowledge Problem:
- Zone pricing ban coming to New York, will the results affirm policymakers’ hopes or economists’ analyses?
- Gasoline prices in New York three weeks after the zone pricing ban
- Would someone please check the price of bread in Connecticut? Another zone pricing post
- Most expensive gasoline in America – a zone pricing protest