Skip to comments.Gas prices give illusion of a bargain
Posted on 11/05/2005 2:58:42 PM PST by SmithL
We gripe about it. We can't do a lot about it. And eventually, we get used to it.
Yup, how we respond to persistently high gasoline prices is starting to look a lot like how we talk about the weather.
A few weeks ago, when the hurricanes were tearing through the Gulf Coast, gas prices shot to $3 a gallon and even higher in the Bay Area and other parts of the country.
People howled about the record prices and dreaded every fill-up. They yelped for good reason: Surging fuel costs had begun to chew up their pocketbooks.
Responding to the public outcry, members of Congress headed to podiums and TV cameras to decry rising prices, rapacious energy barons and greedy oil sheiks.
Now, gasoline is closer to $2.60 a gallon, although some low-price leaders in Oakland and Berkeley have shoved per-gallon costs down to $2.37. And a price that would have sparked an uproar a year ago now causes little public outcry. After all, $2.60 looks a whole lot better than $3 or worse.
Debbie DeSantis of Livermore is glad to see the cheaper prices. Yet DeSantis is well aware that there's some irony when drivers rejoice about a price level they once despised.
"If I get a coupon for a free soda, I get all excited because it's free," DeSantis said. "It's an emotional reaction, it's human nature. Any time you pay less, you're happy even if it's still too much."
So how is it that $2.60 a gallon was the proverbial sow's ear this summer but was transformed into a silk purse by fall?
The answer appears to be human nature, mixed with how gasoline is marketed, complete with price signs every few blocks.
"Initially, when gasoline prices go up, that helps create a reference point for gasoline and you notice it when the price goes past that reference point," said Cesar Maloles, a professor with the College of Economics and Business at Cal State East Bay.
And people are often barraged by media reports about a surge in prices.
"They come to expect that prices are going to increase," Maloles said. "When gasoline becomes less expensive, they are conditioned to think the price they are paying is a better deal than when it was at that price before."
What's more, over time, people adopt a new benchmark -- in the case of gasoline, typically at an ever-higher price -- to fashion an attitude about prices. That's their new framework, as the marketing types put it.
"After a while, people will drive more or less about the same amount of miles, take the same kinds of trips, as they did before," said Itamar Simonson, a professor with Stanford University's Graduate School of Business. "This happens when you raise the sales tax from 7 percent to 8 percent. For a few weeks, people get excited about it. Then they get used to it."
Severin Borenstein, director of the Berkeley-based UC Energy Institute, believes our strongest reactions occur when prices first start to rise.
"It isn't really that they're outraged based on real financial pain," Borenstein said. "It's just the shock that it has gone up that much."
Even experts who are aware of how consumers typically react to lower prices give a hearty cheer when pump prices drift lower.
"We've been shell-shocked by $3.25 gas and I almost celebrated when I saw something at $2.64 the other day," said Peter Sealey, co-director of the Center of Marketing and Technology at UC Berkeley. "It looks as if it's on sale."
Bob Dias, principal owner of a Concord-based heating, air-conditioning and plumbing business, R.D.'s Service Contracting, believes that oil companies and gasoline retailers are well aware of the effects on customers forced to suffer through constant up-and-down cycles.
"They have us on a roller coaster with these prices," Dias said. "They get you paying a dollar a gallon more and then back things off a little when people start to complain. That's how they get us used to these prices."
Borenstein, though, believes drivers must share considerable responsibility for the pace of gas prices, not only when they rise, but especially when they fall. Borenstein and an Ohio State University professor, Matthew Lewis, have teamed on research about why gas prices rise quickly when wholesale costs spike, but fall more slowly when wholesale prices retreat.
"When the price goes up, people shop around a lot," Borenstein said. "When prices decline, people get lazy and don't shop around as much. So the market does not respond as quickly and prices fall slowly."
Still, motorists doubtless feel a sense of relief because they have escaped the worst of the high prices -- for now.
"It's like you have a toothache and it temporarily goes away," Sealey said.
Absolutley correct. I did not notice where it says that about .56 a gallon in taxes, the reformulated cost is about .20. We should just have the federal standards for gasoline emmission.
interesting. from the California Energy Comm.
So do Ronco ads. And don't fall for that sleezebag behind the counter in your local coffee shop who wants to leave you some room for cream.
That would reflect badly on Dr. Dean :)
First time I've seen gas under $2.00 since August.
(Google "inflation calculator")
(Denny Crane: "I Don't Want To Socialize With A Pinko Liberal Democrat Commie.Say What You Like About Republicans. We Stick To Our Convictions. Even When We Know We're Dead Wrong.")
$1.979 in NE OK - 11/5/05
I think a fair price of gasoline is $1.50 per gallon. We are all being ripped off.
Since the Law of Supply and Demand hasn't been repealed, do you have any suggestions for getting a fair price?
Fair price for gasoline is 10 cents a gallon.
That's what my granddaddy paid. Why should I get cheated?
So stop buying it.
Still about 75 cents too high in Chicago.
Just paid 2.38 at El Cerrito Costco this morning. Hasn't been that low since last March.
$2.70 in Reno, Nevada
I'm going to move there then:)
$2.70 in Reno, Nevada
They could have a slot machine next to the pump. They would make more money if they said--"Play for free gas."
I haven't seen Brad's Gramma for a while. She's probably knitting Christmas stockings that fit Michael Moore. I hear it's a year-ROUND project.
I paid 2.28 here on da Sout' Side this a.m.
I paid $1.759 plus tax today. We should pass a law that gas prices are advertised at the before tax price. I think an aweful lot of people think that the 9/10ths is the tax.
You should really provide a basis for your opinion of what the fair price should be.
I think I should be paid $ 600 per hour. I think that's a fair price. What do you think?
If old granddad had been REAL smart, he would have installed a big tank in his back yard when it was 10 cents, and sold off a bunch in mid September.
It is true. Gas was $3.50 for a while here. Damned expensive so when I see $2.50 gas, I get excited even though just a year ago I would have found that crazy expensive. I remember in the late 90's paying less than $1 a gallon!
You can eat without maple syrup. Many people can't get to work without gas.
What blaspheme speak ye!
I spoke with her this am. She's fine, just busy.
That's the beauty of free enterprise. YOU can open up your own service station and SELL it for that price...
This is a joke right?
2.35 in Eldersburg, MD last week. Of course, without the taxes, it would have been 1.93.
Locate, drill, ship, refine, distribute and market. If you can do it cheaper, go for it.
Beware someone will think your price is unfair.
But....maple syrup is my work?!