There is a curious story out of Voorhies, New Jersey that touches on a past subject of how gas stations set their prices. The Lukoil station in the town is charging $3.98 per gallon while other area stations, including one directly across the street, price gas at $1.79. What is interesting is that even Lukoil says that it is trying to strip owner Tony Caprio of his franchise over his gouging of customers.
The station is charging super unleaded at $4.59 a gallon and has been previously criticized as the most expensive gasoline station in the state. Some residents say that they have been fleeced unwittingly, including one who said that his teenager spent $65 on 12 gallons at the station.
When confronted by media, Caprio insisted that he was not in charge of setting prices and said “I don’t make the gas prices, my boss does. You know what? Ask him.” However, the reporter said that Lukoil confirmed that Caprio owns the station and that they are trying to drop him from the franchise.
I have tended to favor an open market approach and to allow competition to handle such aberrant players. So long as he meets the state rules of publicly posting prices, it is up to him and the customers to make such market choices. This is not a situation of gouging in a scarce market like during or after a hurricane. State laws protect against such pricing violations.
It is a curious story since this is a competitive market with an alternative across the street. I have tried to figure out why it would be in Caprio’s interest to set the price so much higher than the competition. Let’s assume that a certain number of people buy gas under the blind assumption that stations are priced with a few pennies of the competitive price. Yet, most people do compare. In order for the gouging to work, you have to make so much money on fleecing the unwitting customers that you offset the loss from not competing on price. That seems unlikely with a competitor across the street. It just seems to defy logic.
What do you think?