How Not to Save Money on Gasoline
Spending money to save money
24 Nov 2007 in Regulatory Economics
Gasoline prices exceed $3 per gallon almost everywhere in the U.S. In some isolated locations, retail prices now exceed $4 per gallon. The Los Angeles Times relates how some people take seeming irrational steps to "save money."
Times reporter Elizabeth Douglass writes about the sparsely populated high desert region east side of the Sierra Nevada mountains.
The Shell station in Bridgeport, a tourist town of 850 residents during the summertime peak, is charging $4.09 a gallon for regular. The outlet posted prices above the $4 mark at least four other times this year.How much cheaper does gas have to be in Gardnerville to be worth driving 124 miles to obtain it? Douglass reports an average price of $3.09 per gallon, but that figure is not representative of California. The U.S. Department of Energy's Energy Information Administration reports $3.40 per gallon for California ($3.51 in San Francisco) for the week of November 19.
Rosemary Glazier, who works in Bridgeport as Mono County's assistant finance director, is so irritated by the prices that she refuses to fill up at the local stations.
"It makes the whole town look bad," Glazier said of the $4-plus prices. Instead, she drives all the way to Gardnerville in Nevada, 62 miles north of Bridgeport, where gas is substantially cheaper.
Douglass doesn't report what Glazier paid in Gardnerville, or what kind of vehicle she drives. Suppose that prices there were exactly equal to the U.S. average, and that Glazier's vehicle gets 20 mpg, has a (large) 20 gallon tank, and she fills up completely. In that case, Glazier saved $20 ($1.00 per gallon times 20 gallons) but she had spend $19.16 on gas (124 miles divided by 20 [6.2 gallons] x $3.09 per gallon) and four hours of time to save about $80. Glazier saved more if her vehicle is more fuel-efficient, less if her vehicle has a smaller tank or she is wary of the risk of running out of gas on that desolate stretch of U.S. 395.
Glazier might think she broke even if her time is worth less than $20 per hour. But she hasn't fully accounted for the cost of operating her car, which is easily $0.50 per mile exclusive of gasoline. That's another $62, reducing her savings to less than $20. Glazier broke even only if her time is worth about $4 per hour -- less than the minimum wage.
People often do seemingly irrational things to save money -- things they probably would not do if they thought carefully about the full costs of their actions. Remember that Glazier works as assistant finance director for Mono County. She was trained to think carefully, and dispassionately, about costs. Why does she spend more than a dollar to save a dollar? Perhaps she allowed her sense of embarrassment that gasoline is relatively expensive in Bridgeport to trump common sense. Or maybe she wants to "send a message" to John Simpson, who owns the two gasoline stations in Bridgeport, that he ought to lower his prices as an act of civic pride. Message-sending tends to be ineffective, even if reporters like Douglass find it appealing. She subtitled her story to suggest that Glazier's behavior is representative ("A California tourist town's residents are so peeved at the pump that they'll drive miles to fill up more cheaply"), but she did not find even a second example of similar conduct.
Gas prices might be lower in Bridgeport if John Simpson didn't own both stations, but it appears likely that prices would be relatively high in any case. Bridgeport is an expensive location to serve because it is so remote, and there are no economies of scale serving a community of 850 residents plus a few tourists. There is somewhat more competition in restaurants and lodging, both of which, like gasoline, are a primary concern for tourists, but not in auto repair or many other services important to tourists and residents alike. Do these establishments not charge prices higher than in "the city"? What is it about gasoline prices that elicits such emotional reactions? California has unusually stringent regulatory requirements for motor gasoline, few refineries to produce it. Writes Douglass, at the very end of her story: "The Nevada stations, meanwhile, don't charge customers as much in gas taxes and don't have to comply with the expensive environmental regulations that apply to California stations."
Another possibility is that Bridgeport residents (but not tourists) routinely drive out of their way to shop, presumably to avoid high Bridgeport prices and enjoy better product selection. In fact, Bridgeport's web portal lists six "general stores." One of them is Costco Wholesale. How could Bridgeport, a town of 850, be large enough to support a Costco? It's not. the nearest Costco is in Carson City NV -- a distance of 82 miles from Bridgeport, and 20 miles past Gardnerville on U.S. 395.
If you're already stocking up at Costco in Carson City, it makes perfect sense to buy gasoline in Gardnerville.
Times reporter Douglass got great placement for her story on gasoline price angst. But except for the novelty that gasoline prices in Bridgeport exceed $4 per gallon, it appears that her story was entirely manufactured to match a predetermined narrative.
