What causes gasoline retail prices to fluctuate?
Over the long term, the price of gasoline is dependent on the cost of crude oil and on the balance between supply and demand. However, in the short term, changes in retail prices are primarily a result of local competition among retailers who attempt to increase their market share at the expense of other retailers by competing on price. Motorists tend to believe there is no substantial difference between different brands of gasoline, so price and service are the only ways in which a gasoline retailer can attract customers. A typical pricing cycle begins when a dealer cuts its price by a small amount in an attempt to gain extra volume. Because prices are prominently displayed, competing stations are quick to lower their prices to protect their own volume. This pattern is repeated and retail prices may fall to a level where revenues are not sufficient to cover the station’s operating costs. Occasionally, the retail price falls below the wholesale price so that the service station is losi
