Why are gas prices in Michiana, the Midwest more volatile than they are elsewhere?

 

First off, the readers who submitted this week’s question are correct. Go to gasbuddy.com, plot the past year’s gasoline price trend lines for South Bend (it’s not possible to do so for Elkhart), along with Hagerstown, Md. and Sarasota, Fla., and you’ll see the stark difference shown in the chart above.

While all three trend lines follow the same general path, South Bend’s line rises and falls more often and more dramatically, while Hagerstown’s and Sarasota’s lines are smooth.

What’s going on here?

It’s a largely midwestern phenomenon that academics and analysts have documented and studied. Matthew Lewis, associate professor of economics at Clemson University, calls it “price cycling.”

In his 2011 paper, “Price Leadership and Coordination in Retail Gasoline Markets with Price Cycles,” Lewis says Ohio-based chain Speedway is to blame. 

“In many cities in the Midwest, stations have gotten themselves into a competitive pattern where they undercut each other pretty aggressively,” Lewis said. “When they get to the point that they’re not making much profit, they raise the price again.”

Lewis has found that Speedway’s large number of stations in Midwestern states such as Indiana allows it to make centralized pricing decisions which are followed, often within the same day, by their competitors.

He noted that other gas station chains are predominant elsewhere in the U.S., so he isn’t certain why price cycling happens more in the Midwest. It could be that Midwestern drivers are more “price-sensitive,” he said.

Grand Valley State University mathematics professor Ed Aboufadel, who makes a hobby of analyzing gas prices, has devoted a page on his website, thegasgame.com, to “The Speedway Effect.” He has found that Ohio (443), Michigan (300) and Indiana (228), which have the most, second- and third-most Speedway stations in the nation, also have the most gas price volatility.

He and Lewis have determined that while that volatility might be annoying for drivers, it results in gas prices that are slightly below the national average.

“So the big question is, what do you want?” Aboufadel has written on the site. ”Gas prices that are on average below the national average and volatile prices? Or prices that are steady, but higher? I don’t like Speedway’s way of doing business, but I’ll take lower prices every day of the week.“

Stefanie Griffith, spokeswoman for Findlay, Ohio-based Marathon Petroleum Corp., Speedway’s corporate parent, declined to be interviewed by The Truth, but defended the company’s behavior in an email.

”Gasoline is one of the most competitively priced products you will find as the price is displayed in a way that consumers can drive by and see the current price at any time and then decide where they will make their purchase,“ Griffith said. ”Speedway is just one of several competitors in the market and will charge their price to address the local competition. The prices changes are indicative of how competitive the market is.“

Patrick DeHaan, senior petroleum analyst with gasbuddy.com, said Hoosier drivers can save money if they stay on top of the price changes.

“It’s got to be maddening for consumers to watch this happening at the pump, and they can’t wrap their minds around it,” DeHaan said.

Gasbuddy offers one of at least five free mobile apps that delivers price change alerts as soon as volunteer price spotters see them occur at the first few stations.

“(Price cycling) can benefit consumers because if they time their purchases right, they can enjoy lower prices then they would elsewhere,” DeHaan said. “But if they time them wrong, they can lose money.”

(0) comments

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.