The Norman Transcript

Commerce

June 9, 2008

The cost of gas: How two filling stations set their prices

AP Business Writer

HAVERTOWN, Pa. -- Steve Kehler spends most of his time working on cars or managing paperwork at the auto repair shop and gas station he runs in this Philadelphia suburb.

Unless an overnight gas shipment forces him to play another round of pricing roulette: Should he raise prices to keep up with pressure from his wholesaler? Or will that kill sales?

"It's not an exact science," he said.

Recently, Kehler's wholesale price jumped by 4 cents a gallon. The price is set by Sunoco Inc., from whom he leases his gas station and is contractually obligated to buy.

Shipments arrive over- night, whenever a remote sensor tells Sunoco that Kehler's tanks are low. The wholesale increase means Kehler will have to raise his pump prices soon -- if he wants a shot at breaking even on gas sales.

That decision -- the type of pricing dilemma gas station managers face daily -- is not as much of a no-brainer as you might think. If a station raises its prices before its competitors, it may lose gasoline sales. But the longer station managers wait -- with wholesale prices rising -- the more money they lose. And sometimes they have no choice but to cut prices to keep cash flowing in.

In the end, Kehler decides to wait a full 24 hours before raising his prices by the 4 cents a gallon his own wholesale prices have already risen.

Eighty-eight miles west, in the quaint south-central Pennsylvania river town of Marietta, Kelly Bosley spends more time worrying about the coffee bar and sandwich counter than gasoline sales at the Rutter's Farm Store she manages.

Unless the Sheetz gas station across the street changes its prices. When Sheetz raises its prices above Rutter's, Bosley's pumps are often suddenly swamped. When Sheetz drops its prices, Bosley's pumps empty just as abruptly.

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