After I was rising up, gasoline typically bought for about 33 cents a gallon. Some stations charged 32 cents, whereas others charged 34 cents, however there was comparatively little variation (over time or geographically.)
After I moved to Orange County, I used to be stunned by the diploma of worth dispersion. It’s common to see gasoline costs fluctuate by 50 and even 75 cents between two shops just a few miles aside. Even in proportion phrases, that’s way more worth dispersion than I noticed again within the Sixties.
On a latest journey to Tanzania, I noticed the alternative sample, a really excessive stage of worth uniformity. Nearly each station charged round 3100 shillings per liter, with solely tiny worth variations. So what explains these variations in worth dispersion?
You would possibly assume that worth variations replicate price variations. Maybe some gasoline stations in Orange County purchased a cargo of gasoline at a better worth than the neighboring station. However that can’t be a whole rationalization. Even when their price foundation differed, you would possibly anticipate shoppers to insurgent towards paying extra at one station than one other. Most shoppers don’t care what they gasoline station paid their wholesaler; they only need to purchase the product on the lowest worth attainable.
As an alternative, I think that earnings variations clarify variations in worth dispersion. It comparatively prosperous Orange County, shoppers desire not to spend so much of time driving round in search of the perfect deal. Due to a excessive alternative price of time, gasoline stations have a bit extra market energy than they’d have in an ideal frictionless market. In Tanzania, incomes are fairly low, and gasoline stations would lack prospects in the event that they charged even one % greater than their competitors.
In fact, this is only one anecdote. However I’ve noticed the identical sample in China, the place there may be much less worth dispersion for a variety of products than within the US.
