New York assembly candidate proposes to *really* ban zone pricing this time

Michael Giberson

From Politics on the Hudson:

Kaplowitz takes on Big Oil, says stronger ban on zone gasoline pricing could create a $1.3 billion “tax break” for New Yorkers.

At a news conference today at 12:30 at the Shell Station in Bedford on the corner of Rt. 22 and Rt. 172, State Senate candidate Mike Kaplowitz called for new laws to strengthen the state’s newly enacted but ineffective ban on zone pricing.

Statement by Mike Kaplowitz:

“Beginning in 2003, I strongly pushed for a state ban on “Zone Pricing” – the practice by big oil companies of charging different wholesale prices to retail stations for the same gasoline based on location.  Under zone pricing, price is not based on the cost of the commodity itself nor based on laws of supply and demand.  Instead, the marketplace is grossly manipulated by big oil.

In fall of 2008, we succeeded in getting the legislature to enact a law intended to end zone pricing of gasoline to wholesalers.  Unfortunately, the new law has had only limited effect, and zone pricing remains widespread in New York State.

(See related reports MidHudsonNews.com and NCNLocal.com).

It seems to be true that “the new law has had only limited effect.” At least it is the case that New York retail gasoline prices didn’t seem to change much relative to prices in New Jersey, when looking before and after the November 2008 implementation of the partial zone pricing ban. A colleague and I have examined retail price and margin data for 8,000+ stations in the two states for approximately six months before and after the law. A short summary is: no obvious change in pricing patterns due to the law.

As Kaplowitz notes in his statement, not all stations were directly affected by the ban as it applied only to wholesalers selling and distributing directly to retailers – not to vertically integrated firms owning refineries and retail stores, and not to retailers who purchased directly from refineries. It would be interesting to see whether the law has had any affect on the relative market shares of retailers buying at wholesale compared to retailers buying directly from refiners or retailers vertically integrated with refiners.

It also is true that most economists believe that zone pricing does not on average raise prices to consumers, and may allow lower prices in some areas. Zone pricing is just a form of price discrimination that relies on a geographic basis for segmenting customers. It is true that zone prices will strike some consumers as unfair, but also true – contrary to Mr. Kaplowitz’s claim – that price discrimination simply reflects the forces of supply and demand in the marketplace.

A complete ban on zone pricing may simply raise some consumers’ prices and lower other consumers’ prices.  Since zone prices likely raise prices in wealthier locales and reduce them in lower-income areas, a ban on zone pricing would tend to benefit wealthier consumers at the expense of poorer consumers.

(Which is why it is no surprise that Kaplowitz is campaigning against zone pricing in Westchester County, New York – one of the state’s wealthiest areas. The state senator who sponsored the 2008 law was from the suburbs of Rochester, another area with higher than average incomes.  Note that zone pricing is also often a political issue in Fairfield County, Connecticut, another wealthy area worried about having relatively higher gasoline prices.)

NOTE: this search will find the many previous Knowledge Problem posts on “zone pricing.”