What a CROCK!
Posted: Thu Jun 17, 2004 7:57 am
MAN.....the oil companies are FULL of it aren't they? 
What a CROCK!
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Secret zones explain gas-price variations
Max Jarman
The Arizona Republic
Jun. 17, 2004 12:00 AM
Valley gasoline wholesalers often use a complex and guarded formula to set prices that most station owners don't even understand.
It's called "zone pricing," and it's one of the main reasons that pump prices are higher near freeways and in affluent areas and can differ between like-branded stations a mile apart.
Gas prices
• Zone pricing
• 10 lowest gas prices in the Valley
To maximize their profits and compete more effectively, companies such as Exxon Mobil Corp. and ChevronTexaco Corp. divide the Valley into zones. Then they set wholesale prices based on demographic and competitive factors in each area. Those prices are reflected in the retail price at the pump.
The oil companies keep details of the zones strictly confidential, but the zones are believed to be based on such factors as real estate values, competition, gas consumption, and traffic counts.
While the oil companies are reticent to talk about zone pricing, David Fogarty, a spokesman for the Western States Petroleum Association in Sacramento, acknowledges that it's a common practice.
Critics say the zones enable the oil companies to manipulate prices to overcharge consumers and drive out competitors. Some states are even considering banning the practice.
The oil companies assert that the zones allow them to be more competitive, and as a result, consumers benefit from lower prices.
"It's a way to react to competition on the street," Fogarty said.
Station owners complain that the zones can be used to discipline them if they aren't toeing the company line. A station that charges more than the wholesaler's suggested retail price could have its price raised to deprive it of the extra profit.
Former Chevron dealer Whit Revell is familiar with zone pricing. For years, he paid different prices for gas delivered to his two Phoenix gas stations, located less than five miles apart.
He was told the stations were in different price zones, but after 35 years as a Chevron dealer, that's about all he could learn about the mysterious pricing plan.
"I would ask them about the boundaries and they would never say," Revell said.
Station operators often speculate about the boundaries of the zones, he said, and believe there are four to six such zones in the Valley.
Indeed, the "dealer tank wagon" price, or the wholesale price paid by branded dealers, varies by a few cents according to location.
On May 28, for example, Scottsdale Arco retailers were paying 3 cents more per gallon than those in Phoenix and 2 cents more than stations in the East Valley.
Such differences are reflected in the price at the pump.
AAA Arizona reported the average price for unleaded regular in Phoenix June 7 at $2.18 per gallon. Scottsdale was 5 cents higher at $2.23, and the East Valley a penny more at $2.19.
Luz Rubio, executive director of the Southwest Automotive Trades Alliance, said the spread has narrowed as prices have soared.
But many believe the zones are more elaborate, differentiating between commercial and residential areas, high and low levels of competition, and income demographics.
"It depends on what part of town you're in," said Azi Naseri, owner of the Chevron station at 5845 N. Seventh Ave. in Phoenix.
Naseri said she understood that the zones took into account residential and commercial areas, but like Revell, she has never been able to get the information confirmed by the oil company.
Charles Langley, a consumer advocate with the Utility Consumers' Action Network in San Diego, said that wholesale prices are higher in areas with heavy traffic and high real estate values.
Langley's organization has used a network of volunteers to monitor prices at some 400 gas stations in the San Diego area since 1996.
A 2002 study by the group concluded that the oil companies use a "complex system of price zones" to control prices, adding that zone pricing contributed to a "coordinated pattern and practice of price manipulation by the major oil companies operating in San Diego."
Fogarty, of the petroleum association, disagrees with the report's findings.
A three-year Federal Trade Commission investigation into Western gasoline pricing, which concluded in 2001, found "no evidence of coordination by refiners in their use of price zones."
A 2003 research report by Cary A. Deck of the University of Arkansas at Fayetteville and Bart J. Wilson of George Mason University in Fairfax, Va., determined zone pricing actually led to lower consumer prices.
Yet an FTC investigation into the 2000 acquisition of Mobil Oil by Exxon Corp. found that the oil companies use price zones to target price-cutting competitors and deter their entrance into specific markets.
The Utility Consumers' Action Network study agreed, saying, "Price zones eliminate the gasoline price wars that in a normal market would force prices down."
Some states, such as Utah, Massachusetts and Florida, have adopted legislation that prohibits oil companies from using predatory pricing to drive out competition.
Arizona has no such legislation.
Arizona Attorney General Terry Goddard said he is concerned about and suspicious of the practice but doesn't intend to push for a ban.
"We have limited resources, and the practice has been determined in several cases not to be anti-competitive," he said.
An FTC study released in March, called "The Economics of Price Zones and Territorial Restrictions in Gasoline Marketing," concluded zone pricing was not a particularly effective way to deter competition or manipulate prices.
The report noted that Costco has been able to enter various markets and thrive "despite the well-documented" price zones.
Consumers in areas with traditionally high wholesale gas prices, such as Arizona, may benefit from competitive zone pricing, the report asserts.
Zone pricing also could lead indirectly to a more efficient relationship between the supplier and dealer and therefore to lower prices.
"Price zones may be good for consumers," said David Cowley, a spokesman for AAA Arizona. "They may dampen price fluctuations a bit and allow dealers to react more quickly to local market conditions."
Dennis
What a CROCK!
Print This | Email This | Most Popular | Subscribe | Larger Type | Smaller Type
Secret zones explain gas-price variations
Max Jarman
The Arizona Republic
Jun. 17, 2004 12:00 AM
Valley gasoline wholesalers often use a complex and guarded formula to set prices that most station owners don't even understand.
It's called "zone pricing," and it's one of the main reasons that pump prices are higher near freeways and in affluent areas and can differ between like-branded stations a mile apart.
Gas prices
• Zone pricing
• 10 lowest gas prices in the Valley
To maximize their profits and compete more effectively, companies such as Exxon Mobil Corp. and ChevronTexaco Corp. divide the Valley into zones. Then they set wholesale prices based on demographic and competitive factors in each area. Those prices are reflected in the retail price at the pump.
The oil companies keep details of the zones strictly confidential, but the zones are believed to be based on such factors as real estate values, competition, gas consumption, and traffic counts.
While the oil companies are reticent to talk about zone pricing, David Fogarty, a spokesman for the Western States Petroleum Association in Sacramento, acknowledges that it's a common practice.
Critics say the zones enable the oil companies to manipulate prices to overcharge consumers and drive out competitors. Some states are even considering banning the practice.
The oil companies assert that the zones allow them to be more competitive, and as a result, consumers benefit from lower prices.
"It's a way to react to competition on the street," Fogarty said.
Station owners complain that the zones can be used to discipline them if they aren't toeing the company line. A station that charges more than the wholesaler's suggested retail price could have its price raised to deprive it of the extra profit.
Former Chevron dealer Whit Revell is familiar with zone pricing. For years, he paid different prices for gas delivered to his two Phoenix gas stations, located less than five miles apart.
He was told the stations were in different price zones, but after 35 years as a Chevron dealer, that's about all he could learn about the mysterious pricing plan.
"I would ask them about the boundaries and they would never say," Revell said.
Station operators often speculate about the boundaries of the zones, he said, and believe there are four to six such zones in the Valley.
Indeed, the "dealer tank wagon" price, or the wholesale price paid by branded dealers, varies by a few cents according to location.
On May 28, for example, Scottsdale Arco retailers were paying 3 cents more per gallon than those in Phoenix and 2 cents more than stations in the East Valley.
Such differences are reflected in the price at the pump.
AAA Arizona reported the average price for unleaded regular in Phoenix June 7 at $2.18 per gallon. Scottsdale was 5 cents higher at $2.23, and the East Valley a penny more at $2.19.
Luz Rubio, executive director of the Southwest Automotive Trades Alliance, said the spread has narrowed as prices have soared.
But many believe the zones are more elaborate, differentiating between commercial and residential areas, high and low levels of competition, and income demographics.
"It depends on what part of town you're in," said Azi Naseri, owner of the Chevron station at 5845 N. Seventh Ave. in Phoenix.
Naseri said she understood that the zones took into account residential and commercial areas, but like Revell, she has never been able to get the information confirmed by the oil company.
Charles Langley, a consumer advocate with the Utility Consumers' Action Network in San Diego, said that wholesale prices are higher in areas with heavy traffic and high real estate values.
Langley's organization has used a network of volunteers to monitor prices at some 400 gas stations in the San Diego area since 1996.
A 2002 study by the group concluded that the oil companies use a "complex system of price zones" to control prices, adding that zone pricing contributed to a "coordinated pattern and practice of price manipulation by the major oil companies operating in San Diego."
Fogarty, of the petroleum association, disagrees with the report's findings.
A three-year Federal Trade Commission investigation into Western gasoline pricing, which concluded in 2001, found "no evidence of coordination by refiners in their use of price zones."
A 2003 research report by Cary A. Deck of the University of Arkansas at Fayetteville and Bart J. Wilson of George Mason University in Fairfax, Va., determined zone pricing actually led to lower consumer prices.
Yet an FTC investigation into the 2000 acquisition of Mobil Oil by Exxon Corp. found that the oil companies use price zones to target price-cutting competitors and deter their entrance into specific markets.
The Utility Consumers' Action Network study agreed, saying, "Price zones eliminate the gasoline price wars that in a normal market would force prices down."
Some states, such as Utah, Massachusetts and Florida, have adopted legislation that prohibits oil companies from using predatory pricing to drive out competition.
Arizona has no such legislation.
Arizona Attorney General Terry Goddard said he is concerned about and suspicious of the practice but doesn't intend to push for a ban.
"We have limited resources, and the practice has been determined in several cases not to be anti-competitive," he said.
An FTC study released in March, called "The Economics of Price Zones and Territorial Restrictions in Gasoline Marketing," concluded zone pricing was not a particularly effective way to deter competition or manipulate prices.
The report noted that Costco has been able to enter various markets and thrive "despite the well-documented" price zones.
Consumers in areas with traditionally high wholesale gas prices, such as Arizona, may benefit from competitive zone pricing, the report asserts.
Zone pricing also could lead indirectly to a more efficient relationship between the supplier and dealer and therefore to lower prices.
"Price zones may be good for consumers," said David Cowley, a spokesman for AAA Arizona. "They may dampen price fluctuations a bit and allow dealers to react more quickly to local market conditions."
Dennis