Why gasoline prices always end at 9/10 of a cent

The national average price on Tuesday was just under $5.02 a gallon, according to AAA. Prices are even higher in some states. California had the highest average price in the country at $6.44 per gallon.

But why does the price of a gallon of gasoline always end up at 9/10 of a cent on station price charts? No other retailer advertises prices in fractions of a penny. Pennies are so worthless these days that people even throw them away or leave them at checkouts rather than keeping them in their pockets.

Fractional pricing first appeared in the early 20th century when states began implementing gasoline sales taxes to help build and maintain highways.

Back then, taxes were collected in tenths of cents and gas stations passed them directly to drivers, said Ed Jacobson, a former gas station owner who now runs the Northwoods Petroleum Museum in Three Lakes, Wisconsin.

But why not just charge a whole penny? Well, at that time the average cost of gasoline was about 10 cents a gallon. So adding a cent was a big deal, especially for cash-strapped drivers during the Great Depression. Instead of rounding up, which would equate to a 10% increase, gas stations added the fractional cent instead.

By the 1950s, as the interstate highway system grew and gas stations began to advertise their prices on large signs, most stations had moved to final prices of 9/10 of a cent, rather than a smaller fraction. It was a way to maximize sales, Jacobson said.

They “grip the ball as much as they can,” he said.

According to Robert Schindler, professor of marketing at the Rutgers School of Business-Camden, setting prices ending in 99 cents, known as “right-below pricing”, is a common marketing tool used to give consumers the feel like they’re doing a good job. who studies retail prices and how buyers process the numbers.

“To consumers, a price like 19.9 cents seems significantly lower than the price of 20 cents,” Schindler said.

Gas station owners now have computer programs that can help them set prices, said Tom Kloza, global head of energy analytics for OPIS, which tracks gas prices at 130,000 stations nationwide. .

Many station owners would prefer their prices to be just a tenth of a cent below an even amount, rather 9/10 of a cent above.

“A lot of small station owners will tell you that they go for a touch price,” Kloza said. “They’ll tell you it makes a big difference if it’s $4,999 or $5,009. Drivers don’t want to see that $5.”

Although AAA’s national average price is now above $5 for a gallon for the first time, the most common price for a gallon of regular gasoline is still $4.9999, according to OPIS data.

There have been occasional attempts to end split gas pricing.

In 1985, Iowa banned the practice. “We don’t have a tenth of a piece,” an Iowa state senator reportedly said at the time. “It just pissed me off for years.” In 1989, however, the state repealed the law and most stations reverted to split pricing.

In 2006, Jim Davis, owner of a gas station in Palo Alto, California, dropped the fraction of a penny and rounded his prices down. He said it cost him about $23 a day.

CNN Business’ Chris Isidore contributed to this article.

By cardgo

Leave a Reply

Your email address will not be published.