IS THIS COMPETITION?
Read the following article, and write a short (one paragraph) alternative explanation for Art Skaroff’s behavior. 3 bonus points. Must be submitted on or before the last day of class.
Philadelphia Inquirer Friday April 19, 2002
Andrew Cassel | The forces at the gasoline pump
Price-conscious motorists keep station owners in line. The number of competitors nearby is another big factor.
By Andrew Cassel
Inquirer Columnist
I've always thought it was the "invisible hand" of the free market that moves gasoline prices around. But the hands beside me the other morning were quite visible. They belonged to Art Skaroff, who was using one to steer his Ford Taurus while jotting down numbers with the other one on a small yellow pad.
"Thirty-nine, 39, 39 . . . this is unusual. It's never this tight," Skaroff said as we rounded a corner in Norristown, the beginning of his daily rounds. That would be $1.39 and 9/10ths cents per gallon, the price at that moment for unleaded regular at self-serve pumps in central Montgomery County.
Nearly every workday morning finds Skaroff circuit-riding around the strip malls, office parks, and fast-disappearing farmland of Plymouth, East Norriton, Blue Bell and Valley Forge. By the time he arrives at his Texaco gas station on Trooper Road in Audubon, he has a good idea of the market price for gasoline that day - or that hour, at least.
Things can change any time, with little warning from his supplier. "They don't give me two hours' notice [of a price change] because they're afraid I'll order more before the price goes up," Skaroff says.
Trucks come every couple of days to refill his station's underground storage tanks, so he has to be on his toes to keep up. Knowing what the other stations in the area are charging is crucial, both to keep customers from drifting to competitors and to keep his own suppliers honest.
The type of information Skaroff gleans each day in his car - information that other dealers collect using everything from the telephone to binoculars - filters upstream to distributors, shippers and refiners, making the gasoline market one of the most efficient and competitive there is.
That's why Skaroff scoffs at concerns that motorists face "gouging" at the pump. He was particularly annoyed recently when the U.S. Energy Department announced that it would take consumer complaints on a new toll-free hotline. "There was no definition of [gouging]; no penalty and no restraint," he said. "So what was the point?"
We pulled past a clump of stations near DeKalb Pike and Germantown Pike. "These guys price off each other," Skaroff said, looking at a Sunoco station. Signs above the pumps said $1.42 (and 9/10ths cents, of course.) An Amoco station nearby was a penny per gallon higher. "He's got bays," Skaroff said, noting the active car-repair facility inside the station.
The gasoline business has been bifurcating for most of the 32 years since Skaroff acquired his station. Dealers who do a lot of car-repair business may not count on selling much gas, so they often price above the market. Those connected to mini-marts need to pump as much as possible, so their prices tend to be lower.
But that's only one of many forces at work. "It's a real patchwork quilt," Skaroff said. He has a long-term supply contract with a major gasoline refiner, but others buy from independent jobbers or on the gasoline "spot market," where prices can be more volatile.
Sometimes prices reflect simple human judgment - or misjudgment. Skaroff recalled when a market-wide price increase caught one of his nearby competitors on vacation. "The guy had forgotten to give anyone the key [to adjust his pumps], so he was losing money until he got back," Skaroff said.
More often, it's simply a matter of dealers balancing local demand against their supply costs. Simple factors, such as motorists' ease of access and the number of competing stations within sight of each other, typically determine how prices are set.
Sure, retail dealers are quicker to raise gas prices than to lower them. "That's the American way," Skaroff said. But American motorists are price-conscious consumers, so dealers who don't stay competitive will lose market share before long. And those who don't keep the pumps flowing have a tough time paying the cost of compliance with modern environmental regulations, Skaroff said