Why Do Gas Station Prices Constantly Change? Blame the Algorithm (wsj.com) 109
Retailers are using artificial-intelligence software to set optimal prices, testing textbook theories of competition, says a WSJ report. An anonymous reader shares the article: One recent afternoon at a Shell-branded station on the outskirts of this Dutch city, the price of a gallon of unleaded gas started ticking higher, rising more than three-and-a-half cents by closing time. A little later, a competing station three miles down the road raised its price about the same amount. The two stations are among thousands of companies that use artificial-intelligence software to set prices (Editor's note: the link could be paywalled; alternative source). In doing so, they are testing a fundamental precept of the market economy. [...] Advances in AI are allowing retail and wholesale firms to move beyond 'dynamic pricing' software, which has for years helped set prices for fast-moving goods, like airline tickets or flat-screen televisions. Older pricing software often used simple rules, such as always keeping prices lower than a competitor. These new systems crunch mountains of historical and real-time data to predict how customers and competitors will react to any price change under different scenarios, giving them an almost superhuman insight into market dynamics. Programmed to meet a certain goal -- such as boosting sales -- the algorithms constantly update tactics after learning from experience. Even as the rise of algorithms determining prices poses a challenge to anti-trust law, authorities in the United States and Europe haven't opened probes or accused anyone of impropriety for using AI to set prices.
Adapt/overcome (Score:1)
But wont consumers get wise eventually and change their habits around this new system? Dosnt that ruin the historical data - I mean, after all, the historical data was from a non algorithm based system. Millennials are already supposedly shunning advertising; I cant help think they will work around this as well.
Also, in their example, isnt this price fixing? Even if its done by an algorithm?
(didnt read the article, no access)... oh actually, let me try that F12 tip today (from reddit?)
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But wont consumers get wise eventually and change their habits around this new system?
Not if they end up with completely removing consumer surplus once the customer can't get any useful information about prices.
Re:Adapt/overcome (Score:4, Insightful)
A little but the average person has a consistent schedule. They drive by the same stations at the same time 5 days a week.
It is tough to alter real life schedules enough to take advantage of lower gas prices at noon when they raise the rates 3 cents a gallon between 6-9 am and 4-7pm every week day and 5 cents a gallon on the weekends.
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This is where EVs really shine. Plug your car in when you get home, and a timer starts charging at 2 AM when energy is cheapest. Alternatively, get some solar PV and make your own "fuel" at home!
Where I am gas is cheaper in the morning (Score:3)
This is yet another good example of how the free market isn't. The entire situation is asymmetric. Companies have more information and control supply. If there was more competition maybe, but between buyouts left and right (thanks to enormous cash reserves left from decades of not taxing anyone) and the simple fact that they can watch each other's prices... well the whole system's busted and I don't see anything fixi
Re:Where I am gas is cheaper in the morning (Score:5, Insightful)
This is yet another good example of how the free market isn't. The entire situation is asymmetric. Companies have more information and control supply. If there was more competition maybe, but between buyouts left and right (thanks to enormous cash reserves left from decades of not taxing anyone) and the simple fact that they can watch each other's prices... well the whole system's busted and I don't see anything fixing it short of UBI + single payer healthcare or the like putting power in consumers hands by ensuring basic needs are met.
Uh, a very transparent market of highly substitutable goods is much closer to ideal competition than most. Sure they play little tricks to nudge out those extra cents of profit but it's important to realize that it makes a huge difference for them if the margin is 2% or 5%. If you're paying $1.02 or $1.05 not so much. If you made it a state monopoly it'd probably cost $1.50 because nobody has strong incentive to make it cheaper, it'll sell because people need it and they can't have it from anywhere else. Socialism is great when there's clear reasons why the market would be dysfunctional. Like:
1. Society would benefit more than the individual, like public transport or immunization programs. This may also include indirect costs like more tax earnings, less benefits, lower crime, lower pollution etc.
2. The nature of the service or economics of scale make it a natural monopoly, like water pipes or a sewage system. The installation and maintenance can be still be contracted out though.
3. The terms are so vague or complex that profit-seeking companies try to bait and switch, like for example in healthcare. Also it's often too urgent and serious to be stuck in court over an insurance dispute.
It's actually the last one I see fail the most but usually it's just incompetence, they blame the profit seeking companies when in reality it's a failure to properly specify what they want, the quality they want it in, how it will be monitored and to have sufficient penalties. That's what you ask companies for, what's the cheapest price you can deliver something that fulfills the minimum requirements. Don't act so surprised when they deliver by cutting anywhere they can.
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Get outta here with your well-reasoned arguments and nicely-worded inputs.
This is Slashdot! :-P
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This is yet another good example of how the free market isn't. The entire situation is asymmetric. Companies have more information and control supply. If there was more competition maybe, but between buyouts left and right (thanks to enormous cash reserves left from decades of not taxing anyone) and the simple fact that they can watch each other's prices... well the whole system's busted and I don't see anything fixing it short of UBI + single payer healthcare or the like putting power in consumers hands by ensuring basic needs are met.
Uh, a very transparent market of highly substitutable goods is much closer to ideal competition than most. Sure they play little tricks to nudge out those extra cents of profit but it's important to realize that it makes a huge difference for them if the margin is 2% or 5%. If you're paying $1.02 or $1.05 not so much. If you made it a state monopoly it'd probably cost $1.50 because nobody has strong incentive to make it cheaper, it'll sell because people need it and they can't have it from anywhere else. Socialism is great when there's clear reasons why the market would be dysfunctional. Like:
As much as I disagree with nationalising industry, most socialist countries that control their oil industry provide cheaper fuel than in the west. Some democratic countries too, this is done by subsidising fuels and often making up the shortfall with exports. Malaysia in recent years was forced to relax their fuel subsidy in response to the long term depression in oil prices. Exports just weren't covering the cost enough to keep it at 3 MYR a litre (less than US$1 at the time).
I disagree with fuel subsid
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Sure they play little tricks to nudge out those extra cents of profit but it's important to realize that it makes a huge difference for them if the margin is 2% or 5%. If you're paying $1.02 or $1.05 not so much. If you made it a state monopoly it'd probably cost $1.50 because nobody has strong incentive to make it cheaper, it'll sell because people need it and they can't have it from anywhere else.
I'd have to say that hasn't been the case of the state monopolies I've seen. WA had state monopoly on liquor. Had to go to their stores which were fairly well spread out and open till 9. Had a wide selection of call brands at prices you could try different brands you'd never heard of. State voted to give that monopoly up and let stores sell liquor. Prices on the rot gut stayed about the same or perhaps dropped a dollar a bottle. Selection was pretty much only common brands. Any call liquor doubled or triple
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Which of course proves nothing. World oil prices go up and down like a whore's drawers.
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You have some very strange ideas of a free market.
First, gas retailing is very competitive business, and the profit margin is paper thin (2% is considered high for a gas station). This is why every gas station has some ancilallary business to acutally make money (mini-mart, car wash, etc).
A 2% margin means that if the station lowered it's price 2% (hardly enough to be noticed by consumers), it would be making NO money selling gas. Drop it enough to be noticed by consumers and you LOSE money on every sale.
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And everyone just happens to pick the same price at the same time.
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Isn't that what you'd expect in a competitive market? It's not as if one brand of gas tastes better than the others.
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Here in Western Australia, some years ago gas prices used to yoyo wildly during each day. Following widespread protests, the government intervened. Gas stations now can only change their price once a day, at 6AM. Further, they must disclose to the government agency their "tomorrow" price each afternoon. These prices are then collated, & posted online. If (like me) you subscribe, you get an email each afternoon, from the regulator's office, comparing today's & tomorrow's prices at (by me) selected ou
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In Germany this practice is observable every day. Fuelstations are obliged by law to upload their prices to a system which offers that information as free data ( MTS-K [wikipedia.org]). As a result you see fuelprices drop steadily during the day because everyone wants to be the cheapest. Only at the end of the day the prices rise again.
BTW: prices are not set by the fuelstation it
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But wont consumers get wise eventually and change their habits around this new system?
Of course they will - you are absolutely right, but this is the sort of things you get when you - once again - have managers that think they have understood the 'science' behind something; it is a kind of magical thinking. They don't realise just how complex a simple looking problem can be, when feedback has to be taken into account.
Something like this was tried for some years in Denmark; I remember driving there a few years ago, and I was amazed at how cheap diesel was, when I arrived in the evening - but
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Millennials? They get their mom to pay for it.
Which is only fair - it's her car, after all.
Gallons in a Dutch city ... (Score:2)
it would have been priced in litres.
If companies are going to start to do dynamic pricing like that ... I wonder how long before someone produces an app that shows you where fuel is the cheapest in your area - maybe crowd-sourcing the data; then the fuel company monitors the app and changes prices based on what it learns ... this could be interesting.
Re:Gallons in a Dutch city ... (Score:4, Informative)
Well, at least half of what you're suggesting is here: https://www.gasbuddy.com/ [gasbuddy.com]
Re: Gallons in a Dutch city ... (Score:3)
I use GasBuddy all the time, but whenever we have an out-of-the-blue 10-15c price spike in South Florida, there's a good chance that even the stations it shows with the cheaper price will have spiked too unless they've had a report within the past 15-30 minutes... after 1 hour, you might have 50-50 odds of getting the lower price. After 2 hours, forget it. A few weeks ago, we had one of those spikes... almost simultaneously, every station suddenly spiked from $2.21-2.35/gallon to $2.39-2.54.
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...do they really price gas in variable fractional cents? In the US, it's always $x.xx9 (e.g. $2.379/gallon, never $2.394/gallon).
/. editor strikes again!)
(And I find it humorous that the alternative link for the paywalled link is itself paywalled.
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and...
...do they really price gas in variable fractional cents? In the US, it's always $x.xx9 (e.g. $2.379/gallon, never $2.394/gallon).
I bet no one in the whole of the Netherlands could quote you the price per gallon of gasoline.
Re: Gallons in a Dutch city ... (Score:3)
And certainly not whether it's an English gallon or whether they've been short-changed with an American 'English units' gallon!
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They do here (Melbourne AU). It's usually .9, but it's not uncommon to see .5 or even .7
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... Dutch city, the price of a gallon of unleaded gas started ticking higher, rising more than three-and-a-half cents by closing time.
...do they really price gas in variable fractional cents?
No. In the Netherlands, gasoline is sold in liters and priced in Euros. TFA translated that to gallons and US dollars, which resulted in an odd fractional cent.
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The algorithm around here (Koch Bros patent pending) is:
10 PRICE GOES UP!
20 Everyone matches the high price
30 Price holds or starts to sag
40 Dribbling down until under $2
50 Goto 10
Price in $bigcity does this. Price in $smalltownonfreeway does this. Moderate size town off the beaten track-- add 10% because fib about being off the beaten tracks. Rinse, repeat.
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Nothing in your grocery store is like that; there is lots of supply/demand, seasonal, and loss leader pricing.
Very little in a hardware store is like this, either. The list goes on and on.
You forget that prices were relatively stable until 9/11, when profiteers took off and used "Hail Mary" pricing tactics to shoot prices up and see where they'd settle. Profiteering is a dirty word, even today.
Fuel prices set the tone for the nervous era in which we live in. Speculators, now in real estate, and so many soft
Re:Lies (Score:4, Insightful)
Nothing in your grocery store is like that; there is lots of supply/demand, seasonal, and loss leader pricing.
Around here, I see a lot of similarly wildly varying grocery store pricing that segments the market into the price-conscious and the price-oblivious. Big discounts every 2-12 weeks so that the canny can stock-up and avoid being driven to cheaper brands, while in-between, big margins are extracted from the wealthy, uninformed, busy, and unorganized.
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What on earth are you talking about? Every grocery store I have ever been in has at the very least 'weekly sales'. That is sawtooth pricing. Likewise department stores and hardware stores and auto parts stores and everywhere else. The prices in those places don't vary as frequently as gas prices, but that is most likely just due to the sheer number of products. They do larger swings (10-25%) less often rather than small swings (2-5%) more often.
9/11 had a small effect on gas prices, no more than other
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Sure they go up and down. Groceries and seasons and promotions and vendor coupons and gimickery of loss-leaders, endcap-profits, there are lots of pricing rubrics in a grocery, but they are pretty small.
Earlier when I wrote this, gasoline was around $1.99. This afternoon, everyone jumped up to $2.35. It will then avalanche for a while, following exactly the program i described, as it always does.
I was around for the "gas shortages" (total BS), and all of the OPEC crises, etc etc etc. It's all BS. More reven
Pretty much (Score:2)
Pretty much just this: https://twitter.com/iamdevlope... [twitter.com]
Anti-trust isn't an issue here (Score:2)
Anti-trust would only come into it if the AI has access to data that has been given to whichever station is using the AI by a competitor (if the AI is fed competitor pricing data because someone looked at the sign board and saw what the competitor is charging, that's fine, if the AI is fed competitor pricing data because the competitor directly gave it to the station using the AI, that's not fine, especially if the pricing data was given before the change was posted to the sign board)
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Most watch the commodity markets (Score:1)
I worked at a gas station owned by a local guy who had a couple gas stations. He was independent and always watched the gasoline bulk market for trends. Also competition factors into gas pricing as well as demand. Its why almost any big holiday you will see a rise in fuel. Sadly a local gas station operator only makes a few cents per gallon, then add in taxes, regulations, and branding requirements. Gas is just gas, but beyond that many things go into gasoline pricing, including cost of ethanol of which muc
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This post is only half tongue-in-cheek.
Gasoline is arguably more important and more of a daily necessity than health care. We need gasoline reform! None of this daily price change, guessing if you have enough change in the seat cushions of your car to fill your tank or not.
Down with the days of filling your tank, only to have the price drop $0.10 a gallon the next day, robbing you of the $1.50 you would have saved had you known the price would drop and you filled up in the morning after instead of the eve
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if it's that big a deal, then buy a more efficient car instead of the giant monsters i'm seeing people starting to drive again
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I'm the original parent poster. This might be a elitist: something isn't right if $1.50 will impact your financial situation. Anyone with a full time job should not have to worry about $1.50.
Crude oil is not motor oil. Crude oil needs to be refined and only small portion of that becomes motor oil. And not all crude oil are the same. Harder to refine and less yield.
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We need price stability for gasoline - something like "no more than a 1% change per week"
They have laws like that in Venezuela. I heard it is working out really well. Why should the market set the price, when the government can obviously do it better?
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A better option would be to create some kind of loan scheme for EVs. EVs cost more up front but save you money in the long run on fuel. A government backed loan at a very low rate, over say 5 years, would bring the up front cost down and spread it out like petrol does, while still saving you money. And of course, it would be much better for everyone in terms of health and environmental impact.
Looking forward to the exploit! (Score:2)
When the price of gas starts to trending to new highs for no apparent reason, you can thank the blind trust of people in AI. ;)
Re: Looking forward to the exploit! (Score:2)
I drive an EV 50-100 miles a day, every day.
There are options.
I don't have solar panels yet, but only because the power bill didn't jump enough to worry about when I switched from gas to electric. (That will come, though...)
WTF (Score:2)
Since when, exactly, are flat-screen TVs "fast moving" consumer goods?
Re: WTF (Score:2)
Since LCDs became dominant & started dying from stupid shit like bad capacitors & heat-induced failure after just a few years.
Between 1970 and 2005, my parents bought three TVs for the living room... the only one that actually *died* was the third (in retrospect, almost certainly due to bad capacitors since they bought it around 1999). They're now on post-2005 TV #3. All 3 were LCD TVs that just died for no apparent reason.
Logical conclusion: 21st-century TVs are built like shit & die after a fe
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Logical conclusion: 21st-century TVs are built like shit
Same with cars. I have seen a working Ford Model-T over 100 years old, but I have never seen a 100 year old Tesla. They just don't last like they used to.
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FMCGs are relatively cheap and get consumed fast. Power, gas, bread, tobacco and soda are good examples.
TVs are in the "durable goods" category, despite your complaint (I agree they don't last as long as they used to, but still).
Point is, TVs are not "fast moving" goods unless their expected lifespan is measured in days. ...or if you drop them from the top of a high rise but that's just stretching the definition :)
I use gas buddy (Score:2)
Second cheapest is on the way to my aerobics class, so I buy gas there.
Actually, the cheapest are either:
1) The Union 76 station 1 mile away that can't handle my credit card, or
2) Various stations that don't accept credit cards. I'm sorry, gas costs so much I don't carry the cash needed to fill my tank. Debit cards don't have the consumer p
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Which shows the closest station as the one that shuts off my gas when my tank is half full. I've told the worker bees, this has gone on for a good 2 years.
Just pull back the vapor recovery collar so that it doesn't recover vapor, and it will happily spew out fuel as fast as it can manage until you let go of the handle.
1) The Union 76 station 1 mile away that can't handle my credit card,
Most places are cheaper with cash anyway.
2) Various stations that don't accept credit cards. I'm sorry, gas costs so much I don't carry the cash needed to fill my tank.
Time to let go of the H1.
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> Just pull back the vapor recovery collar
Bad idea - the collar is there for your health as much as the gas company's. Suggest you use another gas station instead.
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Actually, I don't know. Could be a new car thing...
http://www.azcentral.com/story... [azcentral.com]
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Bad idea - the collar is there for your health as much as the gas company's.
Stand upwind.
Suggest you use another gas station instead.
I stopped using my formerly favorite gas station for the opposite reason. It didn't shut off, and pumped my charcoal canister full of fuel. It made my car smell like raw gasoline for months, until it finally purged. I still buy diesel there, though, since that just spews out of the nozzle like olden times.
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True, but often the savings doesn't justify the expense.
If it's 5 cents a gallon and you're putting in 10 gallons of gas, that's 50 cents. At $2.50 a gallon, that's $25 versus $24.50. Great if you have the cash on hand, but if you have to use the ATM to get it, well it'll cost you more at the station (gas station ATMs are the 3rd party ones that charge you $3 a transaction on TOP of the transaction fees). If you make a diversion, it'll probably cost more in time and
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True, but often the savings doesn't justify the expense.
It doesn't cost me anything to carry a hundred dollar bill on me, and it's not heavy, either. A hundred bucks will fill up any vehicle around here except for my F250, which isn't running right now anyway (and hasn't been for years, and won't be until I get around to engine swapping it — and I'm still working on my A8 engine swap, although I'm in the closing stages on that with the engine in place and ready to be bolted up and its harness plugged back into the car.) It's a good idea to have that money
Offtopic? (Score:2)
We're talking about gas prices. You are cordially invited to choke on me.
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2) Various stations that don't accept credit cards.
I have a credit card from my wife's business. I buy gas with it as a "business expense" that is fully deductible, so I never buy with cash. If they don't take credit cards, they lose my business. ARCO is the only company in my area that has a "cash only" policy, although some others charge 5 cents/gal more (which I am happy to pay for the tax writeoff).
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In practice, this mostly means ARCO takes debit cards instead of credit cards.
One word: Greed (Score:1)
In many places in North America the prices are lowest during the middle of the week and highest on the weekends.
There is only 1 cause: GREED.
They can charge more because they have you the customer, literally, over a barrel. Where else are you going to go to buy gas? Gas companies aren't stupid -- it is all about maximizing revenue. So a few customers complain. Big deal.
Back in the 90's during the Gulf War gas prices in Canada went up, even though it _exports_ more gas then it imports. Why? Because "We ca
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you can always but a more efficient car
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I often see some kerfluffle happen in the middle east and suddenly prices soar, despite the fact that their costs wouldn't be effected
Things are not sold for what they cost, they are sold for what they are worth.
If you see both a diamond and a piece of coal on the ground, the cost to pick them up is the same. Would you sell them for the same price?
If you require companies to price products below what they are worth, the result will be shortages and black markets.
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I can't believe a person in 2017 can't understand that the supply of gas doesn't change radically from day to day. It is not like there is are new drilling fields opening and closing daily. The output of natural gas reserves is steadily increasing [wikipedia.org] as this picture clearly shows. [wikipedia.org]
Do you think gas companies only stock pile gas for 1 day??? How much gas do you think they actually have in their reserves to refuel the gas stations?
The supply chain isn't changing radically on a day-to-day basis. Gas companies ar
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Now you need to go figure out WHY the supply of gas doesn't seem to change that much from day to day.
It's because the prices change instead. When there will be higher demand, prices smooth it out by increasing. When it's lower, prices do the same by lowering.
You're missing the "demand" part of supply and demand. If gas stayed one price, you'd alternately have a glut of gas and shortages of gas, rather than just about the right amount of gas all the time.
In addition, if automobile gas prices are higher for a
AI fight (Score:2)
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Haven't we already seen something like that when EBay and Amazon Marketplace bots get in a fight, where each is scraping the other for pricing data, so the price either becomes ridiculously large or small?
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Artificial Intelligence (Score:2)
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Can't happen here (in the US) (Score:2)
Most, if not all states only allow one price change per 24 hour period.
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Most, if not all states only allow one price change per 24 hour period.
Bullcrap.
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Most, if not all states only allow one price change per 24 hour period.
My Canadian province actually only allows prices to change every two weeks, and sets the range of prices that they can be (based on market conditions). Basically it is an attempt to protect small, independent, rural gas stations by making it so the big chains can't sell at a deep discount (or even loss) to put them out of business.
For some reason, when the system was proposed people were really excited because they thought the government would somehow legislate lower gas prices (how in the world people thou
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Won't happen in the UK either. The prices are quite carefully regulated, but moreover, we have petrol stations that are comfortably in sight of each other. If one puts up the price, then the other just looks out of the window, applies the formula and adjusts accordingly.
Near me we have a Shell station (with a crappy shop, carwash, jetwash, air and water), and next door a BP with M&S shop (sort of like a small super market), nothing much else apart from plastic gloves. The latter always used to be 1p mor
Why does a dog lick its balls? (Score:2)
Why does a dog lick its balls?
Because it can.
boosting sales? (Score:2)
so, the response of the one AI was to also higher the price to 'boost sales'?
that is the most stipid AI i ever heard of, instead of leaving your price low and steal all the customers of the other station which did higher it's price.