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Why Do Gas Station Prices Constantly Change? Blame the Algorithm (wsj.com)
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.
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?)
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.
Pretty much just this: https://twitter.com/iamdevlope...
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)
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 much of America blends into gasoline in some amount.
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. ;)
Anons need not reply. Questions end with a question mark.
Since when, exactly, are flat-screen TVs "fast moving" consumer goods?
...gis sdrawkcab (usually not responding to ACs; don't bother posting as AC)
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.
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 protections I need to trust them, I don't have one.
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 evening before!
We need price stability for gasoline - something like "no more than a 1% change per week, no more than a 1% change per 25 miles. That is - limits on how fast the price can change with respect to time and space.
Related: Since the price of a barrel of oil is only about $45-$50 right now - why does a quart of (non-synthetic) motor oil cost $7!? That's an equivalent price of close to $1,200 a barrel!
"There are a dozen opinions on a matter until you know the truth. Then there is only one." - CS Lewis (paraprhase)
when you're on your way to work with no time to stop and gets more expensive after work.
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.
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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.
---- Teach Peace. It's Cheaper Than War.
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
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.
Gas prices should be based on cost. ONLY cost, and this should be enforced by law. No gouging, no undercutting, no profiteering. If your competitor can get it cheaper then too bad. I often see some kerfluffle happen in the middle east and suddenly prices soar, despite the fact that their costs wouldn't be effected, if at all, for months. People should be much angrier about this.
you can always but a more efficient car
I cannot wait to see AI fights, with multiple AI adjusting tactics to each others. Will price converge? Oscillate around equilibrium? Diverge?
God, enough with the "AI software" BS. It is just software running simple algorithms.
Such sawtooth pricing is everywhere: Milk those unwilling or unable to time their purchases, but still get the business of thrifty, while playing chicken to scare them away from the bottom.
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 and hard goods make the world unpredictable, with all the stress that this implies. We once lived in a somewhat calmer era. Maybe you've forgotten it. I haven't.
---- Teach Peace. It's Cheaper Than War.
Most, if not all states only allow one price change per 24 hour period.
Ken
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.
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?
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.
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.
const int one = 65536; (Silvermoon, Texture.cs)
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Why does a dog lick its balls?
Because it can.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
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 as this picture clearly shows.
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 are buying gas in bulk. What do you think the lead time is for filling stations?
Likewise the demand isn't changing THAT much from weekend to weekend. Seasonal, sure, but daily, no.
The only reason gas companies can change so much is because They Can.
--
Fuck You Red Cross for hijacking the + operator and the color red hundreds of years AFTER the Templars
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 events (in the 70s and 80s, for example). Do you 'remember' the gas shortages of the 70s and 80s?
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 revenue is made in the C-store attached to the station than the fuel costs, and now most C-stores are completely divorced from the fuel prices charged so as not to catch hell when the prices spike, see aforementioned program.
There were decades of comparatively stable prices until 9/11. Then various states attorney generals were pushed to make fuel vendors justify the alarming spikes, some as much as 40%/day compounded. That's the point where every station added another significant digit to the LEFT of the decimal.
This is all Koch Bros Magical Pricing. Make no mistake. Now I get 52mpg, and I roll past them. One day I'll plug into my solar panels and to hell with them.
---- Teach Peace. It's Cheaper Than War.
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 while, then supply will adjust from either more expensive sources or alternative uses for oil products. If prices are lower for a while, then sources which aren't as competitive cost-wise will shut down.
The retail gas prices change when the wholesale prices change. They're pricing for what they are going to have to pay to replace the gas they already have, not based on what they paid last week for the gas they're selling now. They already made or lost money on that gas.
If you are selling something on Ebay, do you price it based on what you paid for it, or based on what it's worth to others at the point in time you are selling it? That second is what everyone else does, too...
And finally, governments (in the form of taxes) profit way more from a gallon of gas than either the oil producers, refiner or gas stations.
The party of stupid and the party of evil get together and do something both stupid and evil, then call it bipartisan.
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.
On a long enough timeline, the survival rate for everyone drops to zero.
We're talking about gas prices. You are cordially invited to choke on me.
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"