Economics 101
Matt Yglesias takes issue with his boss’ assertion that people will always choose $1.60 gasoline over $2.60 gasoline:
You’ve got an Exxon station selling gas at $1.50 a pop and I own the Gulf place across the street and set my price at $2.00 — am I crazy? Maybe not. Sure, “everyone” will go to your station, except that once everyone’s there, you’re going to have a very long line. People who are willing to spend more in order to save time will go to my station. You’ll have higher volume, but I’ll have higher profits-per-unit.
It could well be. Almost daily, I pay $5 in tolls to take a road that saves me a few minutes each way on my commute, bypassing a “free” road that is more congested.
As to gas prices, they fluctuate wildly–by 15 to 20 cents a gallon–on the five miles along Route 7 between my office and where I turn off to access I-66. And all of those stations are a few cents cheaper than the gas stations where I live. There seem to be a plethora of cars at all of the stations.
I guess in a congested area this might be true, but I know where I live, I go for the cheapest gas, even if I have to drive to a station that’s farther away from the one I’m driving by.
I was thinking about this recently. I was driving down Algonkian Parkway and needed to fill up. I noticed that the Mobil was selling Regular for $1.79. When I got to the Shell about a mile down the road, I saw that they were charging $1.83. I pulled a U-turn and went back to the Mobil.
On the way, I was thinking, “I need about 20 gallons, so at 4¢ a gallon, I’m saving 80¢. Why am I bothering?”
Then it occurred to me that I prefer to “punish” the Shell station for having their price so high by withholding my patronage.
Especially if it’s owned by some liberal punk like Matt.
Note for the humor impaired: The Matt part is a joke.
Setting aside gasoline prices and focusing on the larger point, the very existence of Wal-Mart proves Matt’s boss correct.
Paul: Sure, in general, people flock to low prices. I prefer low prices for commodities and will even put up with the crappy service of WalMart for some of it. But WalMart also offers convenience–one stop shopping–that helps offset some of its service drawbacks. And the existence of stores that sell what WalMart does but at higher–soemtimes much higher–prices proves Matt is right: Price isn’t everything.
I am sure that Jim knowns the Wall-Mart at Fairlakes. Before I moved to the DC area, I enjoyed shopping at the super-Walmarts. They were large, clean and had decent service. The ones in the DC area are small, dingy, cramped andquite horrible service. I am now a Target shopper: the prices are simular but the service and store layout beat Wall-Mart in every respect. So price isn’t everything. If that was the case everyone would eat at McDonalds and every restraunt would be out of business.
Yep. The Wal-Marts here are absolutely awful. I don’t get it. I know this is a more affluent area but there are still a lot of people (including myself) who want low prices on commodities.
this happened to me on 9/12/01. i had an 8:00 meeting and when i hopped into the car, she was empty. i went to the local place, but it was jammed with everyone topping off. rather than wait, i drove down the street to the “rip-off” station that is always higher. that day it was 30 cents a gallon more. but no one was waiting, so i filled up, went to work and was happy about it.
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