Fuel for Thought

by Don Boudreaux on August 16, 2006

in Prices

This morning I happened to see a gasoline-station employee manually change the prices displayed in large numerals on the station’s sign post.  The per-gallon prices before the change were $3.01 9/10 (for 87 octane); $3.12 9/10 (for 89 octane); and $3.25 9/10 (for 93 octane).

The prices for the 89- and 93-octane blends fell by one cent each (that is, to $3.11 9/10 and $3.24 9/10, respectively).  But the price for the 87-octane blend fell by two cents — to $2.99 9/10.

At first I wondered at this difference, and then — discussing the matter with my wife, Karol — realized that if the price of the 87-octane blend were cut by only one cent, the new price of that blend would have been $3.00 9/10.  Karol and I agree that we’ve never seen gasoline priced with two zeros immediately after the decimal point — that is, we’ve never seen gasoline priced at $1.00 9/10 or at $2.00 9/10 or at $3.00 9/10.

My reading of the literature on the phenomena of (what to call it?) "99-cent pricing" is that a good, compelling explanation has yet to be found.  But unlike some of my more hyper-rationalist economist colleagues, I don’t dismiss the psychology-based explanation that many consumers in fact act as though there’s a larger absolute difference between prices of, say, $2.99 and $3.00 than between prices of $3.01 and $3.02.

So here’s a threshold question: Am I alone in not being able to recall ever seeing gasoline priced in whole-dollars (plus the 9/10)?

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