Matt Yglesias takes issue with his boss’ assertion that people will always choose $1.60 gasoline over $2.60 gasoline:
You’ve got an Exxon station selling gas at $1.50 a pop and I own the Gulf place across the street and set my price at $2.00 — am I crazy? Maybe not. Sure, “everyone” will go to your station, except that once everyone’s there, you’re going to have a very long line. People who are willing to spend more in order to save time will go to my station. You’ll have higher volume, but I’ll have higher profits-per-unit.
It could well be. Almost daily, I pay $5 in tolls to take a road that saves me a few minutes each way on my commute, bypassing a “free” road that is more congested.
As to gas prices, they fluctuate wildly–by 15 to 20 cents a gallon–on the five miles along Route 7 between my office and where I turn off to access I-66. And all of those stations are a few cents cheaper than the gas stations where I live. There seem to be a plethora of cars at all of the stations.
