40 ms·
Why Do Gas Station Prices Constantly Change? Blame the Algorithm
- Declanomous 10y agoSeems like an interesting article, unfortunately I can't access it, even using the Web link in a incognito tab.
- lukeinator42 10y agohere's a link: http://archive.is/2017.05.08-172743/https://www.wsj.com/articles/why-do-gas-station-prices-constantly-change-blame-the-algorithm-1494262674 http://archive.is/2017.05.08-172743/https://www.wsj.com/arti...
- Declanomous 10y agoThanks! That is a really interesting article.
- rconti 10y agoWSJ posts are definitely becoming more effort than they're worth
- gefh 10y agoI'm trying to decide whether this quote is a deep insight into efficient pricing or consultant-level cognitive dissonance and self-justification: “This is not a matter of stealing more money from your customer. It’s about making margin on people who don’t care, and giving away margin to people who do care,” Leaning towards the latter.
- rcar 10y agoThis sort of thing shows up in lots of different pricing mechanisms. There's no structural reason why plane or train tickets should be cheap far in advance and then go up in price a lot as the departure date nears; it's just that people who are willing to book early are going to be cost-conscious and might compare prices on multiple options while those late might care more about convenience than price (e.g., people traveling on their company's dime).
- Eridrus 10y agoDoesn't buying plane tickets in advance let airlines plan capacity better?
- JadeNB 10y ago> Doesn't buying plane tickets in advance let airlines plan capacity better? Thereby avoiding situations like an overbooking in response to which they call on the police to remove an already boarded passenger!
- gumby 10y agoThey can do some capacity modulation through pricing, sure, but their historical DBs have a large enough 'n' (American Airlines SAABRE was the first big database application and drove database design) that they can predict pretty well. Which is why the bumped-due-to-overbooking is pretty low. BTW I think it's appalling that overbooking is allowed in this age of nonrefundable tickets. You've paid for the seat; whether you sit in it is your business. In the old days of regulation most tickets were fully reusable, and overbooking harks back to that time.
- hinkley 10y agoFor many airlines, you can re-schedule your non-refundable ticket for another day for a fraction of the cost of the original ticket. You still have to fly on that airline at some point to recoup any of the value of the ticket, but it can be done.
- JadeNB 10y agoI can't reply to my sibling post https://news.ycombinator.com/item?id=14301909 https://news.ycombinator.com/item?id=14301909 , where this comment probably belongs, but I hoped I might be allowed to clarify that my badly worded response was not meant to be meaningless snark. What I meant to say in response to > Doesn't buying plane tickets in advance let airlines plan capacity better? was that whatever airlines are doing to plan their capacity doesn't seem to work very well. In support of this vague claim I adduced a news incident, very very snarkily (for which I apologise), but honestly in a spirit of discourse rather than simply of attention grabbing.
- jimlawruk 10y agoThe quote is a good way to summarize what economists call "price discrimination" or "differential pricing." I think the practice generally results in a lower price for the people who "do care" than what they would have gotten with no price differences, because they end up getting a below average price. Although my understanding of that is sketchy.
- Eridrus 10y agoI think it depends a little on how you define "do care". I think people are concerned that prices will rise to an extent they will care about, but that they are still willing to pay, i.e. demand is not very elastic. E.g. if your tank is empty, you're willing to pay an exorbitant price, but you certainly won't be happy about it. So, I think it depends a little on the actual implementation. If this really is about giving people who are very price sensitive a discount I don't think people will mind a lot, but if these algorithms learn to gouge people who are in a predicament, they won't be happy.
- nucleardog 10y agoIf you're price sensitive then you don't wait until your tank is near empty and fill up when the price may be high. You try and plan ahead a little and fill when prices are at a lower point than average. Me? When I hit a quarter tank I go fill up. It's a fuel hungry sports sedan that runs on premium, I resigned myself to the fuel expenses before I even purchased the car. I honestly don't even look at the prices because it's just really not worth the time to worry about for me.
- gefh 10y agoIt's the doublespeak justification for it - "we're helping people by maximizing our profits" - that gets me.
- bmelton 10y agoAirplanes not being the best example, since they control the entirety of the supply chain, but if they were more like arena ticket sales, or sports-team ticket sales, then they actually would be helping people by maximizing their profits. In the case of musicians, most of them undersupply and underprice their tickets, which means that there's a market for reselling. For a variety of reasons, they keep prices low so as to ensure a sold out venue as best they're capable, and when prices are lower than they ought to be, ensures a market for resellers. Resellers help offload the risk to the original sellers, but if the sellers were capable of maximizing profits in the first place, buyers would benefit by not having to deal with the perils associated with gray market sales. Also, the artists / venue / middlemen would make more money. http://www.aei.org/publication/ticket-scalping-as-an-efficient-market-for-risk-management-that-helps-not-hurts-mick-jagger-and-the-rolling-stones/ http://www.aei.org/publication/ticket-scalping-as-an-efficie...
- niftich 10y agoThe quote isn't solely self-congratulatory, as this pricing mechanism occurs in other industries too. For something like fuel stations, which (on the surface) appear plentiful in highly-trafficked areas, it would naively seem that there's plenty of choice for consumers to get the product at the price point they prefer. This is much, much more true for fuel in a populated area, than it is for other products where the alternatives are in fact not equivalent, despite being priced similar (e.g. airplane tickets for the same destination are seldom equivalent, even if there are several choices; they differ meaningfully in departure times, airports, airlines, layovers). In reality, most people are used to constant price fluctuations in the price of products such as motor fuel and airplane tickets, much more so than they are used to fluctuations in the price of staple foods at the supermarket, so most middle-income people (and up) don't go out of their way to find a different fuel station if the price is just a little bit higher, as both the cognitive effort of pondering to switch, and the physical effort of performing the switch often outweighs the savings. For very price-sensitive people, they are (predictably) screwed by this, as they have to run around more, or come armed with more data (price apps) or expend effort on discounts (coupons, driving to the cheapest location, holding off on purchases in the hope that the price drops) to save money.
- kevin_thibedeau 10y agoIt's pretty blatant when any global event impacting future oil supply results in immediately raised pump prices for gas.
- mannykannot 10y agoI am not so sure. I do not think considering the cost of replacing inventory is unreasonable.
- mikeash 10y agoI assume you want them to keep prices low until the more expensive gas actually works its way through the supply chain to them. Should they also keep prices high for that period after oil prices drop?
- lovich 10y agoIsn't that what happens? Back when I owned a car, some event would be in the news that restricted oil supply and the next day the prices would have jumped up. On the inverse, when something like OPEC announcing they would increase production happened that increased the oil supply, prices would not drop for days or weeks. I'm sure that's a lot of anecdotal evidence without the full picture, but there iss no reason for them to drop the prices if the demand is still there. Its the same reason why software is more expensive in Australia when there is no increase in difficulty in distributing it there. The companies charge more because they can
- mikeash 10y agoI think there's some lag, but not as long as the supply chain takes. I'm not sure, it's been a couple of years since I've had to pay attention to gas prices myself.
- Spooky23 10y agoIn my area, there's been a big consolidation of gasoline retailers and distributors, so there is less competitive pressure to lower prices. The biggest differences in price now are between people who use gas as a loss leader (wholesale clubs) and a chain that prices $0.05-0.10 more because the local supermarket subsidizes the gas.
- Spooky23 10y agoThe premise that gas stations are facing internet competition is ridiculous. Equally absurd is "blame the algorithm". While they may use some fancy machine learning, that pattern is pretty clear -- they gouge customers during peak periods, and cut the price during slack periods. The AI component is probably there more to deflect accusations of cartel-like price fixing than any actual utility.
- viggity 10y agoyou say "gouge" I say "increase supply to meet demand". during/after Hurricane Katrina a couple of guys spent tens of thousands of dollars ~$500 electric generators. Rented a truck and drove a long distance to NOLA where they started selling the generators for $3000. They had willing customers, but the police arrested them for "price gouging" and confiscated the generators. Instead of having the option of paying for something that people desperately needed, emotional politicians passed a law ENSURING that people don't bust their ass to bring goods to market. How sad. EVERYONE is worse off in that situation. EVERYONE could have been better off.
- Retric 10y agoIn the traditional case of actual stores the increase in price does not associate with an increase in supply.
- pc2g4d 10y agoGas stations seem pretty inflexible in how much they can supply to market through their pumps. Increasing prices has more to do with making the quantity demanded and quantity supplied equal. When the supply quantity isn't flexible, it's demand that must change, and that's very easily accomplished by a change in prices. At least, that's the theory :-)
- zeveb 10y agoIn the specific case of raising prices, I'd argue that it's decreasing demand to insure sufficient supply. I agree, thought, that it's a good thing.
- theprop 10y agoI wonder if this drives people to Costco? I've felt a major reason people pay to be a member is that if you buy all your gas there, you save in a year roughly the cost of your membership.
- freshyill 10y agoUnfortunately, my Costco doesn't have a gas station. It was planned, but there was a lot of opposition from the neighboring neighborhood (never mind the fact that they already border on a busy mall parking lot). Anyway, the Executive membership will also more than pay for itself with what you get back. I think you always make the extra cost back no matter what. I guess it's Costco tip day here on HN.
- Cerium 10y agoData point: Costco outside my work has gas for $2.61. Across the street is a gas station selling for $2.98. In my experience I save about $4-5 per tank buying at Costco. I fill up about every two weeks, so I save about $100 per year on gas. If you are new to Costco you will typically save nearly the full membership cost on your first trip, stocking up on basic house supplies.
- JustSomeNobody 10y agoThis. And it's very convenient to run in and pick up some necessities after.
- mjevans 10y agoAs a proposed legislative solution to this. Limit the resolution of prices consumers face. E.G. Only allow the price to change at 2AM daily.
- protomyth 10y agoBuddy ran a gas station in the cities for a while and within reason and the law (MN has some rules), he would mostly change his price based on the price of a station near him. That generally went with the price he should be charging based on what they were buying it for. I sometime think he just thought price wars were fun. I guess having an electronic price sign tends to embolden you when your competitor still has to flip it manually. The reservation gas station prices theirs at $0.05 lower than the next town overs gas. They all pretty much buy it at the same price and the profit is on the inside of the store not the gas pump.
- excalibur 10y agoI used to work at a gas station (that no longer exists) where we would get phone calls several times a day. The unidentified caller would ask what our price was, ask what the price was at the gas station across the street, and tell us what to set the price to. Basically anybody could have called that place and set the price to whatever they want (within certain limits of sanity, $0.25/gal or $30/gal probably would have prompted some additional phone calls).
- refurb 10y agoSame here. We'd get a call informing us of a price change. The station I worked at typically followed the price movements of a station down the street.
- slantyyz 10y agoA friend of mine bought a gas station franchise for a major oil company (in a very large city, I might add), and he'd basically do the same. His price intelligence system is pretty low tech - it involves him hopping in a car and seeing what his local competitors are charging.
- bryondowd 10y agoI used to work at a Wawa gas station where the manager would occasionally send someone out to check the station down the street and make sure we were still undercutting them by a few cents. I assumed that was pretty standard in the industry.
- marcgcombi 10y agoPaywall?
- vernie 10y agoI'd much rather blame whoever decided to rely on "the algorithm".