Don't like the price of gas? Just wait a minute

If you think there's something weird about the sometimes daily ups and downs about Twin Cities gas prices, you're onto something.

People who make it their business to track those prices -- from car jockeys to academics -- say the sharp price swings of 5, 10 or even 20 cents a gallon in a matter of days is unlike what happens in most other parts of the country.

"Most people think it's normal, but it's not," said Jason Toews, co-founder of twincitiesgasprices.com, a website that has charted gas prices in the Twin Cities and elsewhere since 2000.

Average prices in the Twin Cities may not be higher than elsewhere, but Toews believes they're far more volatile than in markets such as Seattle and Los Angeles.

Ohio State economist Matthew Lewis has noticed the same phenomenon. He has used industry sales data to track gasoline prices in 280 U.S. cities. The Twin Cities, he said, is one of 45 marked by wilder price swings.

Few things inspire as many conspiracy theories as the price of a gallon of gasoline. When prices go up, it's a concerted effort by Big Oil to gouge consumers. When prices go down, it's a deliberate effort by a sitting administration to placate potential voters.

Generally, however, the price of gas reflects real or feared events: weakening demand for oil, pipeline repairs that limit supply or the potential impact on production of everything from hurricanes to terrorist acts.

Neither Toews nor Lewis see anything sinister at work in the Twin Cities, though both believe that the presence of 171 company-owned SuperAmerica stations and the pricing power of that dominance partly explains some of that volatility.

"It's just a very interesting competitive regime they [gas station operators] have all gotten themselves into," Lewis said.

At Toews' website, volunteer spotters post gas prices from across the Twin Cities metro area. Toews has looked closely at four price spikes since March in the Twin Cities. In each case, he says, SuperAmerica was generally the first to raise prices. Two to five hours later, other stations would follow suit.

The new, higher prices held until one station -- sometimes a SuperAmerica and sometimes not -- would initiate a price cut. That would trigger a response from nearby competitors, sending prices tumbling again.

Toews said he's seen similar pricing volatility in all markets, mostly in the Midwest, where SuperAmerica or its sister company, Speedway, have a large presence.

But he acknowledged that similar patterns exist in markets where the company has no presence.

Angelia Graves, spokeswoman for the Ohio-based chain, rejected any notion that SuperAmerica exerts undue pricing power in its markets. The company has a centralized pricing group, but all it does is set prices based on the company's costs and their competitors' prices -- just as every gas station owner does, Graves said.

But Lewis said his research shows that "price contagion" is more common in markets where a big chain exists, especially in the case of gasoline where, unlike jewelry stores or shoe shops, prices are posted for all to see.

For a price hike to catch on, it has to happen at enough locations that the rest of the stations can see it, Lewis said. "If just one or two do it, everyone else thinks, 'That guy doesn't know what he's doing,'" he said.

What's less clear is why dominant chains -- and all the small operators around them -- perpetuate this volatile pattern in some marketplaces but not others. What he does know is that all 45 volatile cities were in the Midwest.

"This doesn't happen anywhere else in the country," he said.

Buying local

Several small-station owners in the Twin Cities are convinced that SuperAmerica is behind the bump-ups, but they're grateful.

"It's a restoration in price that only one company in town can do," said Jim Lindsey, co-owner of Southdale Sinclair in Edina. "If it wasn't for them, we'd all be out of business."

Gas station competition has its own peculiar economics, those in the industry say. Gasoline may be the most "local" of all retail sales these days: The only thing that drives Lindsey's prices, for example, is what's posted at the BP station across the street. And in interviews, several drivers said they do serious comparison shopping but concentrate on stations near their homes, or along their regular commuting routes.

"I don't go out of my way to shop for prices," said Jerry Mullin of Edina.

Gasoline is also among the most perishable of purchases. "It's not like buying three extra boxes of cereal when it's on sale, and putting them in the closet," Lindsey said. "When you need gas, you need gas."

Minnesota and Wisconsin have laws that are supposed to protect independent station owners by prohibiting below-cost pricing, but many question their value. Minnesota requires stations to sell their gas at least 6 percent or 8 cents per gallon above wholesale, whichever is lower.

But even 8 cents doesn't necessarily cover overhead and credit card transaction fees, said Jared Scheeler, head of operations at Bobby & Steve's Auto World in downtown Minneapolis.

Wisconsin requires a 9.18 percent markup over wholesale, said Janet Jenkins, head of consumer protection at the state's Department of Agriculture. But there's a big exception: Stations can go below that markup in order to match a competitor, which set off a daisy chain of lower pricing 300 out of 365 days of last year, Jenkins said.

As for consumers in the midst of all their comparison shopping, they had several takes on the volatility. Some get so used to it that it feels normal. Some, like Mullin, vaguely attribute the quick price changes to economic forces: "I've assumed it had something to do with the price per barrel of oil," he said.

Others just give up trying to understand it. "I can't believe the [stations'] costs can change so much on a daily basis," said Jay Petersen of Minneapolis. "I think it's tied more to their own whims."

H.J. Cummins • 612-673-4671