Why so little gas station arbitrage?

RSaunders requests:

How does the Exxon at Virginia Ave [in DC] sustain gas prices that are $1 higher than anywhere else in DC (even Adams Morgan). Realize it’s only gas within 3mi and people probably don’t buy a full tank, but can there really be that many people about to run out of gas to buy 1 gal of gas at a time to sustain this differential?

This Exxon comes up right before the entrance ramps to the major highways, right before leaving the NW quadrant of the District for northern Virginia.  Some people simply need to fill up and they are intimidated by the notion of getting off the highway in the suburbs, finding a gas station on the right side of the road, making a subsequent U turn, and finding the entrance ramp back on to the highway they wanted.  They also may have memories of getting back on the Capital Beltway in the wrong direction, being confused by those ramps where going south is called “Baltimore” and going north is called “Richmond.”

If that ain’t worth $5 for America’s elite, I don’t know what is.

A fellow with almost the same name — rsanders — requested a book on Romanian political history.

Comments

How does it protect itself from prevent entry?

it's a locational issue, not a price issue. there's just no space in that area of DC for anything else to be built, particularly a gas station. the station in question is here: http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&q=virginia+ave+exxon&aq=&sll=38.899684,-77.052977&sspn=0.006713,0.009645&gl=us&ie=UTF8&hq=virginia+ave+exxon&hnear=&ll=38.900529,-77.056689&spn=0.000813,0.001206&t=h&z=20

the greenspace to the north is federal land, so there's just nowhere to put another gas station.

In other words, it's an economic rent. Competition would also have this built into their price.

...or: How does it protect itself from entry?

Possibly by not raising their price even further.

It's surrounded by a river and federally owned land.

"being confused by those ramps where going south is called “Baltimore” and going north is called “Richmond.”

Wait, is there really a ramp like that around DC, or is this hyperbole?

I work in Bethesda and I haven't seen signs like that to enter the Beltway. At least, not both "North=Richmond, South=Baltimore" at one entrance ramp. A half-hearted Google search did not reveal such a sign to me.

Matt, I don't think it's a single ramp Tyler was referring to. "Being confused by those ramps ..." referred to the general approach to signage on the circumferential highways of the Interstate Highway System. And no, his description isn't hyperbole at all.

Here in the Norfolk/Virginia Beach area, for example, I can get onto Interstate 64 in the morning rush hour, heading directly into the rising sun, at a ramp that says "I-64 West-->"

The problem is that on a circumferential highway, there are many places where the predominant direction of the highway doesn't match the local direction. So I-64, which goes from Virginia Beach to St. Louis, about a thousand miles straight west, starts its journey heading into the rising sun. The decision was made long ago to maintain consistency by calling it "I-64 West" for that whole distance, which makes sense in the big picture, but which confounds those of us with the sense to know the sun don't rise in the west.

what if they labeled the signs "clockwise" and "counterclockwise"?

Some signs around the DC beltway say "Inner loop" or "Outer loop". That's confusing to many people, though.

Beltway signage is at its worst in and near Alexandria, VA...

But by labeling the ramp to the road locally going south by globally heading north "to Baltimore" makes more sense than labeling a south bound road "north".

Even on a loop, initially going south, instead of north, can easily be the shortest, or perhaps fastest, route to a northern exit to Baltimore.

dude stop trying so desperately to refute everything Tyler says. Sure initially going south to go north may be the shortest/fastest route but that doesn't make the signs less confusing.

Damn son, your vapid and persistent hating is just silly is that this point.

There's a 76 across the street from where I work that is 30 cents higher than a 76 a mile down the road. Some of this is due to their being the only gas station visible at the bottom of the nearby freeway off ramp. And it is more than 2 miles and a lot of street lights the other direction before you find another gas station, as I discovered when I was trying to save some money and burned way more than $5 of time. Also, this station has really short hours, closing early in the evening.

The big key is that, while few cars fill up there, the parking lot is full of cars being repaired. It's a garage that happens to sell gas because it's got a gas station brand.

One day a few weeks ago two TV stations did news remotes from there because of course it was the first station in the metro area to have $4 gas! Did the reporters think to ask if he actually sells any gas?

ABC News did a segment a few weeks ago "Are gas stations price gouging?", which pretty quickly got off the price gouging question and instead had an informative bit on a gas station in Orlando that regularly has the highest priced gasoline in the country. The station is next to the Orlando airport and the last stop for refueling rental cars. They don't post prices except on the pump. They sell a lot of gas to people who don't check prices. The station did attract a "competitor," across a street, which has nearly as high prices and also doesn't post the price except on the pump.

http://abcnews.go.com/WNT/video/gas-stations-price-gouging-gasoline-per-gallon-oil-libya-summer-13089174

I wonder how many people show up to the pump planning to put in enough to get by and say "F' it". I know I do it. Revealed preferences as they say.

While I can see why producer competition might be ineffective in such a location. Why aren't the consumers planning better? Or, is the price of gas for the consumers there irrelevant -- they don't really pay the cost?

That Exxon isn't a dollar more. It is now about (on average) 20 to 50 cents more than stations in the area. Gas in Georgetown/West End is getting close to $4.

The strange thing is there is a Chevron that is 60 cents less just down the block.

Almost all tourist traffic.

Last time I was by that Exxon (a couple weeks ago), I believe regular unleaded was about $4.70. If Georgetown/West End gas stations are "getting close to $4", then that's about a dollar more. Did the price go down?

That Chevron is hard to see compared to the massive amount of inbound/outbound traffic that drives past that Exxon.

gasbuddy on exxon in question:

http://www.washingtondcgasprices.com/Exxon_Gas_Stations/Washington_-_NW/114793/index.aspx

4.25 for the exxons at the end of Georgetown and in the West End. So 4.70 isn't that bad. Still, hard to explain with the Sunoco/Chevron across the street a lot cheaper. I've noticed urban Exxons are very pricey.

Story from last year:

http://foggybottom.wusa9.com/content/425-gallon-regular-gas-virginia-avenue-exxon-might-be-definition-highway-robbery

Is it really the only gas station in a 3 mi radius? For a city, that's an enormous area. Not the least bit surprised about the higher prices.

No. There's one less than a mile away on Pennsylvania Avenue on the east end of Georgetown.

I actually live about 3 blocks from this gas station.

There's a Chevron literally across the street with gas prices anywhere from 75 cents to $1 cheaper. On the map linked below, the Chevon is labeled as "Mid American Petroleum Product."

Also, I don't buy Tyler's theory about on-ramps because a person trying to get on the GW parkway (the fastest way to the beltway from this gas station) would actually drive by both the Chevron AND the Exxon. Also, if you turn into the Exxon first, you can see the Chevron across the street and can easily get to it. And getting on Rock Creek Parkway is equally easy from both gas stations.

http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&q=virginia+ave+exxon&aq=&sll=38.899684,-77.052977&sspn=0.006713,0.009645&gl=us&ie=UTF8&hq=virginia+ave+exxon&hnear=&ll=38.900529,-77.056689&spn=0.000813,0.001206&t=h&z=20

As someone who regularly gets lost on the highways of NoVA, I am thrilled that someone like Tyler is able to validate my view that the signage is less than clear. Even with the GPS, it is hard to keep up with all the forks which come so fast - "keep left...keep right...keep right."

Ken, your comments on the Norfolk area is dead on.

I have a great sense of direction and driving the interstates in that unfamiliar environment was a horrible experience for me-- i kept thinking I was going in the wrong direction.

Don't any of you ever teach the concept of locational monopoly.

There is a station just like that in Boston right across the bridge from MIT.

If you can handle the idea of 93 through town, you can handle 64 around Norfolk/VABeach, it's the same fish hook turned 90 degrees, and neither is all that hard to understand if you want to.

This is the one by the Kennedy Center right? I always thought that was a fantastic location at the confluence of so much inbound/outbound traffic and around a million confusing ramps, turns, and streets. I still end up going the wrong way 1/5 of the time when going by that gas station.

I think that is the one. And if you are leaving the Kennedy Center, and trying to head to Virginia (roosevelt bridge to 66 or GW pkway), you might well think, "oh crap, I better get gas before I get on the bridge." The evidence of this would be if they sell a lot of gas at the end of KenCen events, and almost no gas at other times. It is also the last gas station heading north on the Rock Creek Parkway, and I could imagine thinking "oh crap, I better get gas before I get on the parkway in rush hour headed north." A t hird explanation -- the people buying the gas aren't paying for it themselves (chauffeurs for residents of watergate?, some kind of corrupt fee sharing arrangement with other chauffeurs or drivers for companies who reimburse actual gas costs). (Are there any such drivers?)

It's actually easier to get into the Chevron across the street when you're leaving the Kennedy Center, since the Chevron would involve a right-hand turn, and the Exxon would involve a left-hand one across Virginia.

Many folk use company cars and don't pay for their own gas. For them, why spend the time finding another station? If there's enough of those people, the location would be sustainable.

In particular, people with company-issued gas cards.

In Oakland, there's a Shell and an Arco across the street from each other, just off the freeway near the airport and the Oakland Coliseum. The Shell is routinely 30c/gal more expensive, and has been for years. (Even when gas was below $2/gal, the difference was at least 20c.) The Arco sometimes has lines out into the street, despite a plethora of pumps. The Shell has a few expensive cars with people in suits filling up.

in fact I can see why producer competition might be ineffective in such a location. Why aren’t the consumers planning better? Or, is the price of gas for the consumers there irrelevant — they don’t really pay the cost?

Thanks Tyler!

There's a place in downtown San Francisco where there are two Shell stations directly across the street from each other. The street in question is one on which left turns are not possible. Apparently the effort involved in driving around a block is generally worth 10-15 cents per gallon, most of the time.

The station is next to the Orlando airport and the last stop for refueling rental cars.

Them seem to do that at many airports. In cases like RDU, you have mostly business travelers who are both short on time and they don't pay for their own gas. I'd imagine being the last gas station is a pretty lucrative business.

Could there be more idiots in Washington D.C.? Nah, no way!

Noticing the same thing in different urban areas, you might also ask whether you see this kind of thing in places where people are on average less educated. (Either poor areas of cities, or cities which are less educated in general.) It's just that people are worse at being rational optimizers, and that's how the stations keep selling gas. Post on this observation:

http://thelateenlightenment.blogspot.com/2009/10/economic-rationality-index.html

i guess street view images from google are not from last week:

regular 2.69........ http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&q=virginia+ave+exxon&aq=&sll=38.899684,-77.052977&sspn=0.006713,0.009645&gl=us&ie=UTF8&hq=virginia+ave+exxon&hnear=&t=h&ll=38.900369,-77.055919&spn=0.000779,0.001742&z=20&layer=c&cbll=38.900316,-77.055826&panoid=3EGhZWvWytZ1_3aREwkKmA&cbp=12,357.39,,0,-1.45

Yeah, as a few commenters have pointed out, there is a Chevron quite literally across the street that is considerably cheaper. This explanation doesn't really work.

What is gas station arbitrage? Going to one gas station to buy gas that you then sell to the other gas station and make a profit?

I don't think anybody has the right answer yet. Ordinary margins on gasoline are very low (less than $.10/gal). A station that can sell at a margin of $1 can make the same profit on 1/10 the sales. So it's a low-volume, high-margin strategy, catering to those who don't have the time or knowledge to seek out a better option or who value convenience over price (likely because they're on an expense account and spending other people's money -- spending other people's money is, after all, what Washington D.C. does).

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