Michael Giberson
News headlines say, “Orlando wants to prevent gas price gouging,” though the practice Orlando politicians want to stop isn’t price gouging, per se. Rather, the target of the proposal is gasoline retailers near Orlando International Airport who charge substantially higher gasoline prices than neighboring stations. The proposal would require gasoline stations near the airport to post prices in a standardized manner.
Normally, competition between gasoline retailers keeps prices from getting too far apart in a region because at least some customers engage in comparison shopping. Not all customers will comparison shop, and not even all price-aware customers will switch brands or delay refueling for a few pennies a gallon, so retail gasoline markets usually sport a range of prices.
But most of the time the difference between high and low is on the order of 15 or 20 cents a gallon. A station near the Orlando airport has had gasolines prices that almost doubled the prices of other gasoline retailers in Orlando (for example, as noted here before, prices at $4.99 a gallon with competitors asking $2.59 to $2.75 a gallon).
It is an interesting little business niche. Likely most of the sales go to tourists returning a rental car to the airport before hopping a flight home. Likely the tourists are in a rush, they want to refuel near the airport to avoid paying a refueling charge, and they don’t have a good idea on where to buy cheap fuel around the airport. The price isn’t posted on a roadside sign, but the tourist likely assumes, based on general market experience, that the price isn’t too far out of line with neighboring stations. Many start pumping the gas without checking the price on the pump – a few gag at the price but pump anyway – and a very few get back into the car and go in search of cheaper fuel.
The principled libertarian in me objects to imposing the price posting requirement as an infringement on the station owners’ freedom to operate his business the way he sees fit. The consequentialist in me, though, finds it hard to oppose the proposal. It seems a relatively targeted proposal to help consumers avoid paying the high prices that otherwise flourish in this little niche.
Maybe I should worry not so much about this narrowly targeted proposal itself, this minimalist nudge, but rather I should worry about a government that wants to expand its authority over voluntary deals between retailer and consumer. Is this the sort of nudge that eventually shoves society onto a slipperly slope down the road to serfdom?
The principled libertarian in me objects, but the overwhelming majority of the voices in my head say the benefits of this proposal will exceed the costs: targeted in scope and aimed at helping the consumer make an informed choice. Why not?
Having recently traveled to Orlando for meetings, I can offer personal confirmation that the stations near the airport charge prices that are exceedingly high as compared to more remote retailers. Traveling on business, the convenience/cost calculus leads me to value convenience more than I would were on traveling on my own expense. An obvious agency problem. However, as I was fueling my rental car at just under $5.00 per gallon, I looked across the street to see a new, competing gas station being built. This is the response that we should expect.
Rather than take the dangerous first step of controlling retail pricing, the local government should step back and make sure that the conditions for competition are present. The planned new station was no benefit to my expense account at the time, but I expect that if I were to return after the competing station becomes operational, the prices at both stations would be lower than what I paid last month.
I don’t have as many qualms as you. Markets function better with prominent pricing.
As a consumer who has often rushed to the pump before a flight, I also think that is is a GREAT idea.
They can gouge, but now they stab you from the front.
The piece of information missing from the equation is the price charged by the rental company. I would guess it makes $4.99 per gallon look somewhat more reasonable.
“Gouge” is a very “squishy” term. In the case of the station adjacent to the airport, or even on the airport property, at least the price is on the pump. In the case of the rental company, you can’t see the pump.
The wife and I experienced this first hand a few weeks ago. We live near Orlando and were returning home from a trip. We didn’t have enough gas to reach the house so we stopped at the first gas station on the way. We were stunned at the prices but there was a station right across the street so we drove over there and they had prices typical for the area.
I wonder if perhaps there are some city/county restrictions on how many gas stations can be in a certain area? If so, that might explain how some can get away with such pricing. Allowing a second gas station on the same side of the road may do the trick.
Well, if there needs to be a regulatory intervention (not convinced at all, but assume, arguendo) then perhaps the best one would be to force the car rental companies to refuel the car at the average cost of gas in the area?
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Tim,
…; or, merely, to provide a pump from which renters could refill their own at the prevailing local price.
This 1978 study by AEI develops the market logic of posting prices as an informational enhancement that improves competition.
http://catalogue.nla.gov.au/Record/941325
This study eventually became the basis for a CA law that requires posting of prices in a standardized manner.
“The consequentialist in me, though, finds it hard to oppose the proposal.”
Then the consequentialist in you knows diddly-squat about economics. What kind of a consequentialist supports price controls unless he is an economic ignoramus?
No govt. price controls proposed or endorsed here, so I’m not sure what DD5 is attacking. And it seems like requiring gasoline retailers to post prices is much less intrusive that trying to regulate rental car gasoline rates or other possible ways politicians might pursue this concern.
I want to say thanks to all of responses to the article written. I am the owner of the new Shell gas station and yes I don’t agree with government sticking the two sense into private business, and most of all free enterprise. I do not force anyone to purchase gas from my property, they have the option of driving another mile and save $2 per gallon , but yet they chose not to do that. I provide a SAFE location for local travelers to refuel before departing our city. It is a convenient location and saves travelers that extra ten minutes that they nee to maybe catch their flight. The Mayor does not force the airport to post big signs for car rental refueling, (You did not know that the city and airport collect a 10 percent kickback for every dollar of gas sold at the airport), nor does it tell McDonalds fastfood to post signs that state our Big Mac is a dollar more at the airport so you should by one down the road. The Mayor does not tell the downtown arena that you should have your drinks before yo enter or you will pay three times the price for a beverage or cocktail. I could go on all day on how differant companies profit from not posting big signs advertising how you are about to overpay.
The Mayor has isolated our industry, and started asmall war to try and force price regulations over us. Throughout the entire U.S. , no other city has such an ordinance, he says he wants to be the first.
I will post my sign as long as signs are posted for all other retail sales.
Maybe its a better alternative to prepay for the gas at the car rental company for 20 cents over normal rate. The problem with that is that 75 percent of the people returning leave close to 5 gallons on return. If you do the calculations you are right back to 4.59 per gallon. Don’t forget the airport profits 10 cents on the dollar.
In fact Floirida should just mail out flyers to all tourists, and explain to them that when coming to Orlando they should bring proof of insurance for there car rental, so they are not pressured into by ” optional coverage when they get here”, and that they should stop at a local Publix to buy a weeks supply of bottled water and snacks, and avoid catching a Magic game and maybe even skip the parks if they want to leave with some money left on their credit card.
The price of my gas is high. But know that the average gas station cost about 1.2 million dollars to build including land. After the City of Orlando forced me to build the nicest station by far in Orlando we spent just under $ 7 million dollars. The city knew all this when they were giving us our permits. They knew then the price we were going to charge, but said nothing at the time. It’s like telling us the rules after the fact.
Mr. Mayor stay out of private enerprise, the freedom has been here for many many years . If they start they are allowed to regulkate the way I run my business, who knows you might be next.
Anyone know when the East-West Expressway is going to be paid for? I was told it should have been done about ten years ago. Yet not only are the tolls still there , but are actually higher. Go think?????
What about that multimillion dollar arena being built. My late dad always told me that you can’t have a new bike until you learn how to ride the one you have!!!!!!! LOL
Sorry for spelling errors, just catching a flight to New York.