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Price controls by any other name
Mom-and-pop service stations are running into a problem as gasoline marches toward $4 a gallon: Thousands of old-fashioned pumps can't register more than $3.99 on their spinning mechanical dials.
The pumps, throwbacks to a bygone era on the American road, are difficult and expensive to upgrade, and replacing them is often out of the question for station owners who are still just scraping by.
Many of the same pumps can only count up to $99.99 for the total sale, preventing owners of some SUVs, vans, trucks and tractor-trailers to fill their tanks all the way.
As many as 8,500 of the nation's 170,000 service stations have old-style meters that need to be fixed — about 17,000 individual pumps, said Bob Renkes, executive vice president of the Petroleum Equipment Institute of Tulsa, Okla.
Here is the full story, thanks to William Griffiths for the pointer.
Posted by Tyler Cowen on May 22, 2008 at 04:32 PM in Economics | Permalink
Comments
Not exactly price controls. More like menu costs, as Mankiw says.
Posted by: Eli at May 22, 2008 4:40:29 PM
You'd think they could just knock a zero off. Draw a new decimal point on a post-it note, problem solved?
Posted by: improbable at May 22, 2008 4:49:49 PM
There's something going on with my debit card transactions at gas stations that's limiting me to either $70 or $75, something I never would have noticed until I got a car with a 20 gallon tank. I think the limit is on the gas station end because the number isn't the same every time. Curious that they would do that, but it keeps me from completely filling up sometimes, although I get close. It would be pretty annoying if I had a huge tank.
Posted by: BillWallace at May 22, 2008 4:49:51 PM
Bill, I used to work at a gas station, our tanks wouldn't accept a debit or credit purchase over $85, so its probably on the gas station's end, not yours.
Posted by: Liam at May 22, 2008 4:53:33 PM
Wow, interesting tidbit:
To deal with the problem, some state regulators are allowing half-pricing — displaying the price for a half-gallon of gas, then doubling the price shown on the meter.
In North Dakota, regulators recently told service stations their mechanical pumps could use half-pricing, provided they use signs to alert costumers and find a permanent solution by April 2009.
Think about that: they may start advertising the price of a HALF gallon of gas. Now, bear with me for a
minute here. We all know how human psychology works. If some stations actually do switch to half-gallon pricing,
people will "feel" that the prices are lower there, EVEN if they see the label, and can do the math. Just
like with the dorky practice of selling stuff at "$39.99" instead of "$40", stupid things like this can make people
alter their behavior for stupid reasons.
So then what happens when some advertise half-gallon prices, and some full-gallon prices? Well, then they will ALL
want to switch to half-gallon pricing. Furthemore, imagine what happens afterward, even if prices go back dowan
and/or new pumps are installed? Do you think they'll switch back to full-gallong pricing? Not likely! After all,
who wants to be first?
So, perhaps a legacy of all this will be a switch to a different measure for gasoline.
Posted by: Person at May 22, 2008 4:54:33 PM
Eli: either way, it causes price rigity
Posted by: brian at May 22, 2008 4:57:57 PM
Some years ago, some gas stations switched to liter pricing for this reason. It didn't last.
Posted by: alkali at May 22, 2008 5:10:45 PM
Half-pricing seems like a simple and obvious solution here. What's the big deal?
Posted by: Bernard Yomtov at May 22, 2008 5:11:00 PM
Person,
The end state of this is that we'll all end up with gas being measured in liters, like in Europe.
Posted by: quanticle at May 22, 2008 5:31:27 PM
I'm thinking pricing by the quart might be better than by the half-gallon. Prices around a dollar would be far enough away from experience that they wouldn't be compared with the price of a gallon across the street.
Also note that all the signage visible from the street ought to still be per gallon. The only place the price need appear per quart would be on the pump next to the big sticker saying "PRICE PER QUART. MULTIPLY BY 4."
Posted by: MikeP at May 22, 2008 5:35:41 PM
Isn't there supposed to be a central bank somewhere to deal with exactly this sort of problem by increasing the gallon supply? Gallons are sticky, damnit.
Barring that, this could be a good impetus to abolish both the penny and the nickel, and then take the next step of revaluing the currency by a factor of 10.
Posted by: mobile at May 22, 2008 5:37:30 PM
If we inflate enough, that gas will cost nothing+epsilon.
Posted by: TGGP at May 22, 2008 6:34:08 PM
I bet this turns out to be a bigger problem than Y2K.
Posted by: Brad Hutchings at May 22, 2008 8:00:39 PM
I bet this turns out to be a bigger problem than Y2K.
Ding-ding. We have a winner.
Posted by: Bernard Yomtov at May 22, 2008 8:16:30 PM
In Brazil, during the high inflation era of the late 80s and early 90s it was pretty common for pumps to run out of space (a liter of gas could easily start the year at 1.00 and end at 30.00).
The solution was to change were the decimals started. So prices on pumps as marked on pumps could go from 4.00 to "0(space was a dot used to be)4(painted dot)0(painted 0)".
That was not a big deal, but then, we were capable of coping with a lot.
Posted by: Andre Uratsuka Manoel at May 22, 2008 8:29:36 PM
Half-pricing was used extensively in the 1970's, when prices went way up and most pumps were still mechanical.
It's not hard, people.
Posted by: ZBicyclist at May 22, 2008 10:39:29 PM
So the pumps which were installed to replace the ones which couldn't go above 99 cents (because when those were made, who could envision $1/gallon gasoline) have a limit of $3.99? Will they replace those with pumps with a $5.99/gallon limit?
Posted by: Mitch at May 22, 2008 10:45:06 PM
So the pumps which were installed to replace the ones which couldn't go above 99 cents (because when those were made, who could envision $1/gallon gasoline) have a limit of $3.99? Will they replace those with pumps with a $5.99/gallon limit?
Posted by: Mitch at May 22, 2008 10:45:36 PM
We'll know things are really bad when people start getting into gunfights at service stations over the last tankfuls of $20/gallon gasoline.
Posted by: Peter at May 22, 2008 11:01:59 PM
OK, this is way aside -- I admit it. As a collector of old vending machines, I was astounded that the early '60's Coke machines had coin mechanisms that would only register a dime. It seems that a cold drink had been a nickel for so long, that when they raised it to a dime they never figured the life of the machine would outlive the step in price.
The reality was, machines needed to negotiate 25c payments within 10 years. The only reason I had the original coin mechanisms is that these machines were placed in a high school teachers lounge (pristine!), and I bought them at auction from the State.
I'll add, as I've done many times (and many old programmers know), I've many times used 2 byte integers where words would have been more appropriate, or allocated space for a text field that was (on reflection) stupid.
I don't make these mistakes anymore -- because I'm perfect. That's why I get the big bucks ;)
Posted by: SheetWise at May 23, 2008 2:26:08 AM
They'd be well advised to get signs that also have room for natural gas and alcohol.
Posted by: day4night at May 23, 2008 3:33:52 AM
Y2K 2 G4D?
Posted by: Andrew at May 23, 2008 7:39:38 AM
I remember the 1/2 gallon pricing in the 1970s when gas spiked over a dollar a gallon. That might have been 1979. No big deal. My guess is that the price of gas divided by the per capita GDP is much lower now than then, though I am too lazy to go look that up now. Plus, except for the most foolish of v10 pick-up truck, Hummer and Suburban/Excursion buyers, cars today are more fuel efficient than then. So, our high gas prices of today are surely less of a burden, on average, now than then. But of course, they are more painful now than 2 yeas ago.
Posted by: liberalarts at May 23, 2008 9:55:58 AM
Sheetwise,
The story goes that in 1953, Coca-Cola president Robert Woodruff tried to convince President Eisenhower to issue a 7.5 cent coin...
Posted by: at May 23, 2008 11:06:03 AM
You folks don't travel much. When is the last time you filled with a pump like this? The biggest danger to pumping gas is if the satellites go down and they don't take credit cards.
Posted by: mwbugg at May 23, 2008 8:51:22 PM
Fortunately this is not a problem in Florida because the state already put all the small gas stations out of business by mandating expensive, eco-friendly, leak-proof tanks. My mother-in-law can no longer find a gas station that isn't self-serve. The added cost of these tanks and their instillation is also added onto the cost of gas so don't just blame supply and demand. The state environmental regulators are also at work. If fact the problem of the rare tank leak could have easily been solved by a simple insurance scheme instead of mandating new expensive tanks. The nuts really are in charge.
Posted by: WS Grizzard, MD at May 23, 2008 10:35:49 PM
@ Dr.Grizzard: i dont much trust insurance schemes to prevent voc's from leaking into the aquifer that provides my drinking water. much better to lock the stable with the horse still in it
Posted by: wrfhjgo at May 24, 2008 7:53:14 AM
