Even more baffling, as a customer, why would you go to the more expensive pumps? Sure, loyalty discounts might account for a certain number of decisions, but that can't be the only answer. I've often wanted to go up to someone pumping gas at a higher price when there's a cheaper station right next door, and just ask them how they decided to pay more.
https://www.kalibrate.com/achieve-fuel-pricing-mastery-lp
> In our latest free e-book, you'll find out: What data you need to capture to make better decisions, How to properly gather the right information, Why competitor pricing matters
Brand loyalty; that one time your uncle went to the other place and then two days later needed an engine rebuild, lalala.
For the gas stations available where I live, I have a general idea of which one is going to be cheapest and just go there. The <$2 I could have saved by going out of my way to go for the _currently_ cheapest is not worth the effort to me, especially given how crazy people drive here (Florida).
I think this is actually mandated most everywhere in the USA. Not that I like it. Just saying, that I wish I could choose a station that didn't do that.
Same reason there are different buy/sell positions on the stock market. People have all kinds of different strategies and portfolios and the price at any given time represents a snapshot of these fluctuating values. Not everyone buys gas for the same price at the same time, not everyone is shooting for the same margin, some may use gas as a loss leader to encourage purchase of overpriced goods in the accompanying store, etc.
For instance my default is always choose a QuikTrip. No matter what part of town I’m in, the place is clean and friendly, they don’t act as if everyone who comes in is a potential robber, and they take Apple Pay.
Needs a (2008)...
Maybe the differences in the 2016 election were more of style than substance.
Both candidates pointed the finger at powerful (but opposing) foreign-policy enemies (China and Russia). Both made statements in line with interventionist foreign policies. Both lacked any substantial policies to change course on deficit-financed spending. Both said little to nothing about the appropriateness of domestic surveillance. Neither had anything remarkable to say about promoting freedom of the press.
Of course there were some visible policy differences. For example: who to tax and who to let into the country.
And then there were the abundant stylistic difference.
Getting back to the game/analogy presented in the article's video, maybe the differences we saw were more about what color to paint your hot-dog stand and what resemblance if any your logo bears to those used by boogeymen from the past. It had less to do with the quality of the ingredients or prices.
This is also not a Republican or Democratic thing. While yes, the Republicans have Trump, the Clintons also championed the get tough on crime “Three strikes you’re out” laws to protect the good citizens against evil non violent “inner city” criminals.
1) It misses pricing. If I am next to another gas station or hot dog stand, I have competitive pressure; my best strategy is to price just below the competitor. If I am isolated, I can jack up prices by however much people are willing to spend to not go further.
2) It also assumes just two players on a beach. With more players and a longer beach, you end up with everyone spread out. With three players, the two outer players will continue to move in towards the center player. If the center player ever has less than 1/4 of the beach, they'll want to move to just outside one of the other two players, who will then want to move to the center.
The model is not really about location. It is about product differentiation in SOME dimension. By extension, it is also about the number of market participants with differentiated products. Distance or location stands for this differentiation of products.
This is typical of econ models. They are not trying to be realistic, but show a certain mechanism.
By the way, the model can be extended with different pricing mechanisms and many actors (for example on a circle, not a line, to show that generally too many firms enter a market than can be supported).
As for your points:
1) Pricing depends on demand and maket configuration. Usually, one would work with what is called the "inverse demand", where the company has basically solved price as a function of the the amount of goods it WANTS to sell, given other market participants. Note how pricing is implicit in this. While these functions are of course usually assumed to be well behaved, you could do what you want here. So it doesn't miss pricing, it just abstracts from it
In particular, that you can jack up prices depending on location is _explicitly_ in this model.
2) Note how the locations depend on the distribution of demand along the "line". Your intuition depends on this as well. If demand is concentrated somewhere in the middle, you will get a different result...
That's the idea.
It limits its applicability, but it doesn't mean the model is incorrect.
https://en.wikipedia.org/wiki/Location_model
https://saylordotorg.github.io/text_introduction-to-economic...
"In Hotelling’s Location Model, firms do not exercise variations in product characteristics; firms compete and price their products in only one dimension, geographic location. Therefore, traditional usage of this model should be used for consumers who perceive products to be perfect substitutes or as a foundation for modern location models."
There used to be petrol stations everywhere, it was the hot new product to sell once upon a time and every garage would want to have a forecourt. The infrastructure needed then wasn't that much more sophisticated than that needed for a lemonade stand. You could just put the sign up and profit from the passing trade very much on a know-the-customer-personally basis. No upsells were needed, it was an easy way to print money.
Then the market got saturated. Much like mobile phone shops, suddenly small towns had half a dozen of them.
Then this business got picked off by the supermarkets in European markets. They sold own brand petrol at first at a better price than the established brands. The brand did not matter as it is a commodity product. They did not have to make money off it as they were luring customers in for their big shop.
After this round of musical chairs only supermarkets, convenience stores and motorway service stations survived.
I think it has been a cruel business and it is quite sad that something so valuable has no return in it for the end retailer.
In the US gas stations used to be very full service. For the price of a tank (and tip) you would get your radiator and tires topped off, windshield cleaned, etc. There were probably a few old groceries that had a couple pumps but the full service stations quickly became popular. That ended with the oil crisis and stagflation, and self service became the norm, except in a few holdout states like New Jersey, where full service was the law.
The sad result you mention (which is good for consumers, perhaps bad for the environment) is that commodity pricing and loss-leader mentality has made gas worth selling at a small loss to get people to buy high-margin items in the store. QT has cheap gas and expensive sodas.
In American this would be every... mechanic? would want... a gas pump out front?
