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-   -   Why do gas station prices end in tenths of cents (like $2.499)? (https://boards.straightdope.com/sdmb/showthread.php?t=357232)

Marley23 02-03-2006 11:27 PM

Why do gas station prices end in tenths of cents (like $2.499)?
 
This question just popped into my head the last time I refilled my car, and I can't shake it loose. I don't know why I didn't ask The Dope before. But why do gas stations do this? Why not just charge me $2.50 a gallon instead of $2.49 and nine-tenths? When I remember that the price is $2.499 instead of $2.49, I feel like I'm the victim of an anti-"buy one, get one free" offer. When did this slimy practice get started anyway?

LiQUiDBuD 02-03-2006 11:53 PM

I will admit that I don't know what the exact reason is, but I'll place a bet that it's one of those psychological tricks these marketers try to play on us all. Kind like how you always see products priced at $9.99 instead of $10.00. Somehow within our minds, the former is much more attractive than the latter. I'll go out on a limb and say that gas pricing methodology is practiced no differently.

I'm sure someone will be along shortly with some real knowledge and real answers. Until then...there's my $.02 ;)

Airman Doors, USAF 02-03-2006 11:55 PM

Why do prices end in .99?

Admittedly, it's not exactly what you asked, but the principles are the same.

.Tyr. 02-04-2006 01:19 AM

When you see 2.499 do you think "Gas is at 2.49" or "Gas is at 2.50"? Personally I tend to parse it as the former. It probably started with one station doing it, and slowly spread untill it became the standard.

Marley23 02-04-2006 02:16 AM

Quote:

Originally Posted by Airman Doors, USAF
Admittedly, it's not exactly what you asked, but the principles are the same.

I'm sure they are - perhaps we only find this phenomenon at gas stations because they sell in bulk, after a fashion? That still makes the decimals seem like a way to give the customer a little less for his money. I'd love to see some research on this, though.

calm kiwi 02-04-2006 03:49 AM

Quote:

Originally Posted by Marley23
I'm sure they are - perhaps we only find this phenomenon at gas stations because they sell in bulk, after a fashion? That still makes the decimals seem like a way to give the customer a little less for his money. I'd love to see some research on this, though.

The 2.499 for petrol may be alone but in NZ we ditched the one and two cent coin a while ago (the five cent coin is going soon), in most shops there are still $2.99 signs. If petrol prices annoy you try living somewhere where everything is rounded up or down (most places follow the Swedish rounding system). You can't buy anything for 99 cents even when that is is the price!

Ice Wolf 02-04-2006 03:56 AM

Quote:

Originally Posted by calm kiwi
You can't buy anything for 99 cents even when that is is the price!

You can when it's by eftpos.

Booker57 02-04-2006 09:16 AM

It has something to do with the way liquid fuel is taxed. A local gas station tried to sell at a different price, ending with 5/10th and was told by the tax people to stop.

aahala 02-04-2006 10:42 AM

I would like to see a definitive answer to the OP also.

One possible cause I believe we can eliminate is the federal excise(gas) tax. It started about 1932 and most of the time till the late 80's it was in whole cents. The rest of that time period it had .5 cents as the last digit. It has never ended in .9 or .3.

aahala 02-04-2006 10:46 AM

Whoops, the tax did end in .3 in 1996 and part of 1997.

jasonh300 02-04-2006 11:15 AM

We had a thread about this recently.

One of the answers was that waaaaaay back when gas was like a dime a gallon, someone put it on sale at $0.099 a gallon (9.9 cents). At that time, $2.00 was a lot to pay for a tank of gas and that 1/10 of a cent you saved ended up being 2 cents off the tank, which is 1%. The 2 cents was probably enough to buy a coke or a candy bar. Not a bad savings.

Now that gas is $2.499 a gallon, you still save that 2 cents on 20 gallons which is 0.040016006403%. Totally insignificant.

If we could still save that 1% off of $50 worth of gas, it'd still be enough to buy a (canned) Coke or a candy bar.

Another possible answer: Some things are not sold by the distributor in the same unit in which we buy it.

Oil refineries may sell fuel for $XX.XX per 100 gallons. $169.90/100 gallons comes to $1.699. Of course that wouldn't explain why it's always .9 because the price could just as well be $169.50/100 gal. I guess the extra .4 would be part of the station's markup.

Also, it's rare anyone buys exactly one gallon of gas, which would leave the gas station with an extra 1/10 of a cent. But if you buy exactly 10 gallons, the station doesn't get the extra millage.

If gas is $2.499 and you prepay with $2.50, do you get 1 gallon or does it give you 1.0004 gallons?

Here's some links to other threads.

From 5/19/04

From 8/3/2000

I could swear there was a more recent thread but I can't find it through the search function.

asterion 02-04-2006 11:58 AM

Also, at least now, gas is sold to the thousandths of a gallon. I suppose there's no reason it has to be sold to three digits, but it matches the price.

As for if gas is $2.499 and you pay $2.50, you will generally get 1.001 gallons. At least, that's my experience of several years of watching whole-gallon prepays.

t-bonham@scc.net 02-04-2006 04:24 PM

Quote:

Originally Posted by Booker57
It has something to do with the way liquid fuel is taxed. A local gas station tried to sell at a different price, ending with 5/10th and was told by the tax people to stop.

Could we see a cite on that, please?

According to this website http://www.minnesotagasprices.com/tax_info.aspx, the taxes in states vary widely, and end in everything from .1 to .9. They are all defined as so many /gallon, added into the retail price. So if the state gets it's money, why would they care what the last digit of the price is.

I think the local station was feeding you a line.

Even more detail (from 2002) is available at http://www.house.leg.state.mn.us/hrd/pubs/gastax.pdf. Total tax on gas ranged from 35.38 (NY) to 8 (AK).

-----------
Some legislators are talking about setting the price as a percentage of the gas sales price, rather than a fixed number of pennies. This would have the advantage of automatically changing the tax as the energy price fluctuated, but the disadvantage of being harder for the state to verify that the correct amount was paid.

Queuing 02-04-2006 04:42 PM

Quote:

Originally Posted by calm kiwi
<snip>(most places follow the Swedish rounding system).<snip>!

What is Swedish rounding system?

octothorpe 02-04-2006 05:15 PM

OK, i'm not going to say that this is a definitive answer by any means, but the non-obvious logic to the 9/10 (or any decimal portion for that matter) cent may have more to do with ensuring accuracy than the psycological effect it may have on the consumer's perception of true price.

To the best of my knowledge, the various state's 'weights and measures' departments (usually a subdepartment of the Agriculture Department) are responsible for ensuring that the consumer isn't defrauded at the pumps. Fuel pumps are supposed to be certified for accuracy annually. This used to be done by dispensing fuel into 'certified' vessels and comparing dispensed fuel to the indication on the pump. Back when i was pumping gas for spending money, the weights and measures people would come by once a year with 2 five-gallon containers and dispense 10 gallons from each pump. If the posted price was 59.9/gal (did i mention how long ago this was?), the the pump better read $5.99 and 10 gallons. If it did, they'd slap a sticker on the pump and be on their merry way. If not, they'd shut down the pump until it was fixed. After the tests, the fuel was poured back into the main storage tanks and a receipt was provided to the operator to make his books balance.

I still occasionally stop at 10 gallons when i'm filling up just to see if the pump's accurate (old habits...).

#

samclem 02-04-2006 06:19 PM

I'm going to offer an answer based upon reading old newspaper articles online about gasoline prices in the 1915-1955 period and using my memory of prices in the Wash. DC/VA. area in the 1950's.

The pump price of gasoline/gallon in the period before the 1950's varied quite a bit. It wasn't unusual to see prices of 23.3, 28.4, 21.5, etc. But the gas price wars of the late 1940's-early 1950's probably triggered the use of the nine-tenths of a cent ending to the cent price of a gallon of gas. At least, that's my reading of it. Anything to beat your competitor.


As a treat--the price of gasoline in 1920 was 29 cents/gal. Only one tenth of a cent was tax!

Schnitte 02-05-2006 11:19 AM

Another factor that comes into play here is the fact that every station is doing it, and the first station to stop using .9 cent prices would suffer disadvantages: Drivers are so much accustomed to this phenomenon that many of them inadvertently add the near-cent when estimating the costs of the refill. So if a station sold its gas for $2.490 per gallon, most drivers would just see the first three large digits and think the price would be equal to the one at a competing station nearby, which continues to sell for $2.499. The first station wouldn't attract new customers with its price reduction, but lose 0.9 cents per gallon. So why be the first one to break this unwritten rule?


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