Summer '14: Gas prices like a roller-coaster ride
CHAMPAIGN — Take a look at average gas prices in Champaign over the course of the last 12 months, and you might conclude your gas pump has a heartbeat.
Prices appear to go up every two weeks, then come back down, in a regular pattern.
Then take a look at Peoria’s gas prices over the same year, and you’ll see no such cyclical behavior. Prices there rise and fall but in no regular pattern. The same is true in Rockford.
Patrick DeHaan, senior petroleum analyst for GasBuddy.com, said Champaign gas prices follow a trend seen through much of Indiana, Ohio and Michigan and parts of Kentucky and West Virginia.
He describes the “price cycling” trend like this:
“Every week or two weeks, there’s a big spike followed by a big decline. I would call it the follow-the-leader approach. One chain of stations has more pricing power than other stations, and that station’s strategy is, instead of keeping the price steady, it likes to be competitive. ... They like to be the pricing leader.”
The Federal Trade Commission staff looked at the phenomenon in a September 2011 report.
In that report, titled “Gasoline Price Changes and The Petroleum Industry: An Update,” price cycling is described as “a recurring ‘saw tooth’ pattern of retail price movements characterized by a period of a relatively small number of large price increases, followed by a period of more numerous, but smaller price decreases.”
The study said gasoline price cycling in the U.S. “appears largely confined to the Midwest.” It cited two studies by researchers that found no evidence of cycling outside the Midwest. One research group found that price cycling in the Midwest “became evident only beginning in 2000.”
The FTC report said the causes of price cycling aren’t fully understood. Some studies say Midwest price cycling is explained partly by “the greater presence of independent, non-refiner firms in that region.” But other studies say cycling is correlated with “the concentration of branded (refiner-affiliated) stations.”
According to the FTC report, one study by Matthew Lewis — then an economics professor at Ohio State University — concluded that “price leadership by two retail chains, Speedway and QuikTrip, both of which are located primarily in the Midwest, explain that region’s propensity for cycling.”
Researchers also tried to see how price cycling affected the welfare of consumers.
One study cited by the FTC found that gas prices would be 3.5 cents per gallon lower without the fast pass-through of costs that is associated with cycling.
But several studies found that on average, cities with price cycling tend to be more competitive and have lower prices — or retail margins — than cities with no price cycling. One study said cycling areas had average retail prices that were 0.75 to 1.4 cents per gallon lower than non-cycling areas.
The FTC report suggested savings to consumers might be even greater than that, since consumers in cycling cities might be able to shift some purchases to times when prices are low.