Fed report identifies gas price pattern in St. Louis metro area

In a new report from the Federal Reserve Bank of St. Louis, economists confirmed that the volatile gas pricing patterns in St. Louis are typical in markets in which a handful of retailers are dominant, leading some to deem the phenomenon the “QuikTrip effect.”

In the study, published May 2, the authors describe a “striking feature” of local gas pricing: “A large price increase followed by smaller price cuts followed by a large price increase.”

That sawtooth pattern also, they said, follows an easy-to-predict pattern: “The average gas price almost always jumps in the second half of the week and then continues to decrease until the next surge.” In other words, prices tend to peak on Thursdays, Fridays and Saturdays.

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The authors noted that cyclical pricing is consistent with what are known as Edgeworth cycles: “Gas stations undercut each other on price to gain business. When retail gas prices approach the wholesale cost of gasoline, a more-dominant firm will increase its prices. Other gas stations follow suit, thereby resetting the cycle.”

The authors also note that it is not entirely clear why the pattern in St. Louis follows a weekly timetable with peaks on Thursdays, Fridays, and Saturdays. “It is possible that demand for gasoline is higher during the weekend, and gas stations raise prices to take advantage of this effect,” they say.

Cyclical pricing may not be bad for consumers, however, they argue. A previous report in 2013 showed that once cyclical pricing started in a metropolitan statistical area, average gas prices tended to decline in that area compared with areas with no cyclical pricing, controlling for other factors. This finding suggests that cyclical pricing is a form of competition. In addition, consumers can save if they identify the cycle floor and buy then.

Read more: St. Louis Post-Dispatch


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