Municipal Gas Station Proves Popular in Kentucky

[ksen]

If that's all "market price" is then who gives a fuck if a municipality is able to offer gas at below the inflated price some gas station owners think you should be paying?

And how do you know those numbers on the sign aren't above market price? I mean one town over the numbers on the sign are 20 digits lower.

Do you understand what a market is?

I do. I'm still trying to figure out if you do.

 

[Bronzeage]

Why are two different businesses selling for 20 cents more?

I don't know. The citizens surely suspect the convenience stores in town are gouging greedheads.

Is their cost of doing business higher than the neighboring town? Is the neighboring town at an Interstate Highway, and benefits from a large volume of travelers? There are a lot of factors to consider. The cost of doing business is usually higher in a small town, if only because of the low sales volume and the extra distance goods must travel.

Apparently the town citizens don't think that the situation justifies the mark-up.

Does the City own a fuel tanker which drives to a distant fuel distributer and returns loaded, but this cost is not included in the price of gasoline?

Wow.

If the City sells 20,000 gallons of gasoline and discovers they sold it below cost, when all the factors are included(other than the wholesale price/gal), it's of no great consequence. City Hall will not have to close. If a private business under prices it's goods, it might not be able to pay the rent, or what's worse, it might be able to pay its taxes.

Selling cheap gasoline won't close City Hall, but low tax revenue might.

That's kinda the point of the exercise. The high prices in town are driving tourists OUT of town, and the city is not gaining the revenues from the tourist dollar.
As far as the tourists are concerned, the prices in other towns are part of their market. They're taking their vacations elsewhere.

So i'm still wondering what you mean by 'market price.' The town is in competition with their neighboring towns for the tourist dollar, so if they match those prices, are they under or at market price?

Gouging greedheads? That's a new name for "Mom and Pop". The next time we have an evil Walmart thread, I'm going to use that to describe the neighborhood corner stores which have to close. "Noble Walmart drives greedy gougeheads out of business, and good riddance to them."

If there is a 20 cent difference in a gallon of gas, this is a $4 difference in a 20 gallon fill up. If a person thinks the travel to the neighboring town is worth less than $4, then they would travel there for gas. If we factor in the fuel consumed in the round trip and add that to the cost of fuel purchased, plus real operating cost of the car, and assume you had nothing better to do, we can arrive at a true cost of the gasoline. Twenty cents a gallon might not be such a good deal, after all. That is how markets work. Right now, I am drinking a cup of coffee. My coffee started life as a bean on a Colombian mountain side. Some how it made it all the way to a store in Baton Rouge and sells for about $5 a pound. It seems a high, but if I had to travel to Colombia to get my coffee, I would probably pay a lot more that $5 for the trip.


In the days when I had a comfortable home in the suburbs, there was a convenience store gas station on the corner by the main highway. Even though it had an Exxon sign out front, I knew their gasoline was always 10 or 12 cents higher than an Exxon station 15 miles away, closer to where I worked. I tried to time my fill ups when I would be at work. However, the corner station has been in business for about 25 years now, selling their 12 cent higher gasoline. The market price in Prairieville is higher than the market price n Baton Rouge. Are they gouging greedheads? The Prairieville store is privately owned and the owner bought an Exxon franchise. The cheaper place in the middle of a large city is part of a nationwide chain. Each place has a very different cost structure to consider when they set their prices.

 

[Nice Squirrel]

Why are two different businesses selling for 20 cents more? Is their cost of doing business higher than the neighboring town?

You folks do know how pricing works? Do you know that you want to sell not at the lowest price, but what the market will bear? You do know that most businesses avoid engaging in cutthroat competition because it hurts their bottom line? There is this thing called "profit". Why is it assumed that these businesses do not have large margins? We have not seen their books, we don't know any information on their operations, but people here are making wild assumptions about "selling below cost" and "raising taxes". This gas station is not anything new, and for all we know won't have a significant impact on gasoline sales at the other stations.

Also, why are we assuming people will flock to the muni station? Lord knows that very few people actually shop around for gasoline. We pay what the price is and go in and see the familiar clerk, buy our hot pocket and chaw and leave not noticing or caring that we paid $3 more for a fill. The only time I price shopped for gasoline was on I-90 in South Dakota.

 

[Bronzeage]

Do you understand what a market is?

I do. I'm still trying to figure out if you do.

Please share this information with me. That way, I'll know what a market is, and your curiosity will be satisfied also.

 

[ksen]

There is nothing magical about "market price" and being able to beat market price isn't some violation of universal norms.

 

[dismal]

Also, why are we assuming people will flock to the muni station?

I'm not. I'm assuming it will be unviable unless the government props it up. In which case people who place little value on convenience may go to it in some limited amount.

I have little doubt the government can prop up businesses. Heck, PDVSA sells gasoline for $0.25 per gallon.

- - - Updated - - -

There is nothing magical about "market price" and being able to beat market price isn't some violation of universal norms.

What do you think the profit per gallon is on retail gasoline?

Take your best shot.

 

[ksen]

There is nothing magical about "market price" and being able to beat market price isn't some violation of universal norms.

What do you think the profit per gallon is on retail gasoline?

Take your best shot.

Who cares? That's got nothing to do with my statement, "There is nothing magical about "market price" and being able to beat market price isn't some violation of universal norms."

But I see your still showing off your talent for bringing up the irrelevant.

 

[Malintent]

they're aiming to break even, not profit

COMMUNISM!!!

It is far worse than communism. It is a flat out violation of rules 18 and 23.

 

[dismal]

What do you think the profit per gallon is on retail gasoline?

Take your best shot.

Who cares? That's got nothing to do with my statement, "There is nothing magical about "market price" and being able to beat market price isn't some violation of universal norms."

But I see your still showing off your talent for bringing up the irrelevant.

You are showing off your talent for clumsily avoiding a discussion.

Part of the market price, indeed the part everyone seems so jazzed up about here, is the retail profit.

Since I would assume you are wise enough about gas station economics to know that the big parts of the gas price (crude oil, refining margin, taxes) are not relevant here retail margin is the only piece left.

So, how big do you imagine retail margin is, and what percent of it do you think is profit?

I think failing to answer this question will illustrate you actually don't give a shit about having an honest discussion about the relevant factors affecting this topic.

 

[Keith&Co.]

Gouging greedheads? That's a new name for "Mom and Pop".

Okay.

The next time we have an evil Walmart thread, I'm going to use that to describe the neighborhood corner stores which have to close. "Noble Walmart drives greedy gougeheads out of business, and good riddance to them."

I think you have it a bit backwards. The convenience stores are the ones with prices that the citizens think are overinflated for no good reason. According to dismal, the convenience store have brand loyalty and buying advantages so they should be underselling the city pump and driving the city pump out of business.

If there is a 20 cent difference in a gallon of gas, this is a $4 difference in a 20 gallon fill up. If a person thinks the travel to the neighboring town is worth less than $4, then they would travel there for gas. If we factor in the fuel consumed in the round trip

Of course, one of the reasons they're doing this is that tourists won't make that round trip. They just won't stay someplace with such costs. They'll stay where the prices are more attractive, and do all their tourist spending in the vicinity of the cheaper gas.
So the citizens are being screwed by having to travel out of their way for cheaper gas, at the cost of travel, yes, but also not getting tourist monies into the city at all.

and add that to the cost of fuel purchased, plus real operating cost of the car, and assume you had nothing better to do, we can arrive at a true cost of the gasoline. Twenty cents a gallon might not be such a good deal, after all. That is how markets work. Right now, I am drinking a cup of coffee. My coffee started life as a bean on a Colombian mountain side. Some how it made it all the way to a store in Baton Rouge and sells for about $5 a pound. It seems a high, but if I had to travel to Colombia to get my coffee, I would probably pay a lot more that $5 for the trip.

Yes, yes.
Now, if the city can get the gas at 20c/g less than the convenience stores, where is that 20c price hike coming from?

The market price in Prairieville is higher than the market price n Baton Rouge. Are they gouging greedheads?

You did notice that i was saying, it seems to me that the citizens in the news story have that opinion? They're demanding lower prices because they don't see a reason for the price increase. Maybe there is one, but the story didn't provide a justification. They didn't quote the convenience store owners offering one.

The Prairieville store is privately owned and the owner bought an Exxon franchise. The cheaper place in the middle of a large city is part of a nationwide chain. Each place has a very different cost structure to consider when they set their prices.

Yes. Closer to the highway is traditionally more expensive, because the traveler will not usually go far from convenience to get cheaper gas. The markup is not from the dealer's costs, but because their prey is paying for the convenience.

I still don't understand what you mean by 'market price,' though. If the city is selling gas comparable to the neighboring city's convenience stores, is that at or under the market price?

 

[Nice Squirrel]

I'm not. I'm assuming it will be unviable unless the government props it up. In which case people who place little value on convenience may go to it in some limited amount.

Your assumption is in error.

The amount charged motorists will be based on an average regional price for gas, and will include a small markup to cover costs, the mayor said Imagine that, they mark up the gasoline to cover costs! COSTS! How uncommunisty!


Then again, there is no reason why the city would need to "prop" it up. They only real cost they have is the purchase of the fuel and maintenance to the facility. I'm surprised as it seems you have never heard of this kind of an operation before being an expert in the field of retail gas stations.

 

[ksen]

Part of the market price, indeed the part everyone seems so jazzed up about here, is the retail profit.

Since I would assume you are wise enough about gas station economics to know that the big parts of the gas price (crude oil, refining margin, taxes) are not relevant here retail margin is the only piece left.

So, how big do you imagine retail margin is, and what percent of it do you think is profit?

I don't care what the retail margin is. Neither does the town since they aren't looking to turn a profit.

I think failing to answer this question will illustrate you actually don't give a shit about having an honest discussion about the relevant factors affecting this topic.

Since retail profit margin has nothing to do with what the town is doing it's not relevant to this thread at all.

 

[Nice Squirrel]

Part of the market price, indeed the part everyone seems so jazzed up about here, is the retail profit.

Um, no. Market price is independent of retail profit. (See housing bubble.) What a company sets prices at does (most often) include a level of profit. What the average price products are offered or sold at is considered to be the "market price".

 

[dismal]

I'm not. I'm assuming it will be unviable unless the government props it up. In which case people who place little value on convenience may go to it in some limited amount.

Your assumption is in error.

The amount charged motorists will be based on an average regional price for gas, and will include a small markup to cover costs, the mayor said Imagine that, they mark up the gasoline to cover costs! COSTS! How uncommunisty!


Then again, there is no reason why the city would need to "prop" it up. They only real cost they have is the purchase of the fuel and maintenance to the facility. I'm surprised as it seems you have never heard of this kind of an operation before being an expert in the field of retail gas stations.

First, the city is already guilty of propping it up. They expended taxpayer money on pumps and other improvements. They are giving it tax free use of land.

Second, this :The amount charged motorists will be based on an average regional price for gas, and will include a small markup to cover costs - is how all gasoline stations work except there is a markup that hopefully covers cost and a bit more so there can be a profit. Although to be precise stations do not buy at an "average regional price for gas" they buy at whatever price they can buy gas at which is a function of scale and buying power. Which this station will not have.

Third, the amount you have to mark it up to cover costs is a function of the volume you sell. If you only sell a few gallons you have to mark it up a lot to cover costs. Since it is not a given that you can mark it up that much, thousands of retail gasoline stations have gone under. The ones that go under are the low volume ones.

Fourth, what do you imagine the average per gallon gasoline retail profit is? I understand the desire to conduct this discussion in abject ignorance is high because people who actually understand this business just slow the momentum down, but I'll provide this link to help the discussion a bit:

http://www.eia.gov/petroleum/gasdiesel/

This link shows the entire retail markup to cover cost plus profit is currently 8% of gasoline price. At the average price of $3.69 this means it's about $0.30. I would imagine 90+% of that is covering costs - land, utilities, staff, property taxes, etc.. And this is an average for big efficient service stations. So you got 2 or 3 cents of profit you may be working with, unless this is a better more efficient service station than one managed by people who know what they are doing. Which it isn't. Which is why this thing would not exist and will not exist without taxes propping it up.

 

[Bronzeage]

Yes. Closer to the highway is traditionally more expensive, because the traveler will not usually go far from convenience to get cheaper gas. The markup is not from the dealer's costs, but because their prey is paying for the convenience.

I still don't understand what you mean by 'market price,' though. If the city is selling gas comparable to the neighboring city's convenience stores, is that at or under the market price?

Imagine you drive through a town which has two gas stations on opposite corners. If you are between the two stations, your cost to do business with either is the same. This means you can ascertain the market price for gasoline by looking left and looking right, and reading the signs. If you want to include nearby towns in your market, you will need to include the price of travel, which is a "market cost".

Now, imagine someone sees the gasoline in your town is selling for 20 cents more than a nearby town. He does some calculating and determines he can buy some property, make improvements and open a gas station which can sell gas for 18 cents more than in a nearby town. The 2 cent difference will insure a substantial market share, because it costs no more to get to his station than the other two. You now have a market with 3 gas sellers and the same number of buyers. This lowers the market price, simply by the average. The other sellers may lower prices to retain market share, but if the number of sellers does not increase, everyone makes a little less money. That is the reality of markets.

Now, imagine if someone can open a gas station without any of the expenses of buying property and building a station. They have access to a large fund of money which is not their money, but have been left in charge of this fund, so they can use it to purchase fuel and pay any related labor and maintenance costs. Without having the burden of rent, payroll and other expenses, they can sell gasoline for 2 cents more than the nearby town. Once again, market share will be captured by the low cost retailer. If the number of buyers does not increase, once again, everyone makes less money.

This is a problem for the original gas sellers. If they cannot pay their bills, they will have to close. It's not a problem for the station without expenses. They have an endless income which is not related to the sale of gasoline. This endless supply actually comes from you.

The idea of government buying essential commodities and distributing them at very low cost to the public certainly has some merits to consider. It's been tried before with varying results. In the old Soviet Union, bread was baked and sold by state owned bakeries and the price was fixed. Pig farmers found it more economical to buy bread and feed it to their pigs, rather than grow grain for pig feed. This meant the cost of a pig to the economy was not actually reflected in its sale price, but it kept the price of a ham sandwich down.

It comes down to this. A town with only two gas stations and a high price of gas needs a third gas station. If the government starts selling gas at a low price(cheaper than you would pay at the other two station), no one has any reason to open a third station. If that is what the people want, they have a chance to say so at the next election. When it comes time for property tax assessments, they'll need to remember that a little of what they pay goes to make life a little cheaper for the folks who drive cars.

 

[Bronzeage]

I'm not. I'm assuming it will be unviable unless the government props it up. In which case people who place little value on convenience may go to it in some limited amount.

Your assumption is in error.

The amount charged motorists will be based on an average regional price for gas, and will include a small markup to cover costs, the mayor said Imagine that, they mark up the gasoline to cover costs! COSTS! How uncommunisty!


Then again, there is no reason why the city would need to "prop" it up. They only real cost they have is the purchase of the fuel and maintenance to the facility. I'm surprised as it seems you have never heard of this kind of an operation before being an expert in the field of retail gas stations.

Wouldn't the "average regional price for gas" include the markup to cover costs? When they add "the small markup", it appears the City intends to use gasoline sales as a revenue source.

 

[Nice Squirrel]

Your assumption is in error.

The amount charged motorists will be based on an average regional price for gas, and will include a small markup to cover costs, the mayor said Imagine that, they mark up the gasoline to cover costs! COSTS! How uncommunisty!


Then again, there is no reason why the city would need to "prop" it up. They only real cost they have is the purchase of the fuel and maintenance to the facility. I'm surprised as it seems you have never heard of this kind of an operation before being an expert in the field of retail gas stations.

First, the city is already guilty of propping it up. They expended taxpayer money on pumps and other improvements. They are giving it tax free use of land.

"Guilty"? This would assume a crime has been committed. Yes, they figured the capital costs into the price they are charging consumers. The land was already owned by the city and does not represent an additional capital cost.

Second, this :The amount charged motorists will be based on an average regional price for gas, and will include a small markup to cover costs - is how all gasoline stations work except there is a markup that hopefully covers cost and a bit more so there can be a profit. Although to be precise stations do not buy at an "average regional price for gas" they buy at whatever price they can buy gas at which is a function of scale and buying power. Which this station will not have.

Nice attempt at playing Chicken Little. Um this little station does have scale and buying power (small) and can buy from more than one supplier. If it goes out of business, it will revert to the fleet depot.

I am going to stop there, because your great analysis fails to account for the other products sold gas stations to cover the thin margins of gasoline. A point which, you, the expert, failed to include in your latest post.

 

[Nice Squirrel]

Your assumption is in error.

The amount charged motorists will be based on an average regional price for gas, and will include a small markup to cover costs, the mayor said Imagine that, they mark up the gasoline to cover costs! COSTS! How uncommunisty!


Then again, there is no reason why the city would need to "prop" it up. They only real cost they have is the purchase of the fuel and maintenance to the facility. I'm surprised as it seems you have never heard of this kind of an operation before being an expert in the field of retail gas stations.

Wouldn't the "average regional price for gas" include the markup to cover costs? When they add "the small markup", it appears the City intends to use gasoline sales as a revenue source.

Why would it not use it as a revenue source? Cities do this all the time.

 

[ksen]

Man, I never realized that one little municipally owned filling station in bumfuck Kentucky would spell the end of capitalism and the American Way.

 

[Bronzeage]

Wouldn't the "average regional price for gas" include the markup to cover costs? When they add "the small markup", it appears the City intends to use gasoline sales as a revenue source.

Why would it not use it as a revenue source? Cities do this all the time.

Of course they do. I buy my steaks at the government butcher shop and get my car detailed at the government car wash. What do you buy from the government that is also sold by private retailers?