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Q: gas prices, fractions of $0.01 ( Answered 4 out of 5 stars,   2 Comments )
Subject: gas prices, fractions of $0.01
Category: Business and Money > Economics
Asked by: giannandrea-ga
List Price: $11.00
Posted: 08 Apr 2004 01:17 PDT
Expires: 08 May 2004 01:17 PDT
Question ID: 327038
why is gas allowed to be sold at rates of 1/10 cent when nothing else is, and the
payment is rounded to $0.01
Subject: Re: gas prices, fractions of $0.01
Answered By: pinkfreud-ga on 08 Apr 2004 15:09 PDT
Rated:4 out of 5 stars
I've found several online discussions of this matter; most of them
agree that the pricing of gasoline in tenths of a cent is a marketing

"Q--Why do gasoline prices end in nine-tenths of a cent?

A--I could not find anyone able to provide a definitive answer, but
there were several speculations. One is that it came into being as a
result of the taxes, both state and federal, that caused prices to end
in fractions. Seems unlikely.

Another idea is that the price goes back to a time when a penny was
actually worth something so for every ten gallons a person purchased,
they kind of got one free. Nah, it doesn't add up.

The most plausible reason is simply a marketing tactic. It is the same
reason a steak is $19.95 or a car is $32,995. Psychologically, it
looks and sounds cheaper."

The Car Connection,174&sid=174&article=6925

"Q: Why is gasoline sold with a point-9 percentage? Are they cheating us? 

A: We went to the gasoline and automotive service association for your
answer. It says using nine-tenths as part of the price of gas is a
marketing technique. For instance, a $1.29 and nine-tenths sounds
cheaper than $1.30, and reads better on a sign, especially a sign far
down the road."


"Have you ever wondered why gas prices look so odd? Try this: Pay for
one gallon of gasoline with the exact change. Sound easy? It's
impossible, because gas is priced with an extra nine-tenths of a cent.
For example, you can't pay $1.49 and nine-tenths unless you cut a
penny into tenths. Instead, gas stations round up to $1.50.

This partial-cent pricing dates back to the 1920s when gas was cheaper
and a penny meant more to drivers - but it was basically a marketing
gimmick to make gas look cheaper. Studies show that products priced
with odd-number endings sell better. Consumers read prices from left
to right, leaving off the last digits. People see $1.499 and think
$1.40, instead of the actual price, $1.50."

The Long Island Commuter

"For its part, the gasoline industry seemed stumped.

'That's an interesting point that I don't have an answer to,' Dan
Gilligan, executive director of the Petroleum Marketers Association of
America, said of the false advertising charge... He said the most
credible theory he's heard explaining why gas stations started using
fractional cents is because it reflects the way federal and many state
gasoline taxes are levied. Currently, for example, the federal gas tax
is 18.4 cents a gallon. (When the tax was first imposed in 1932, it
started out as a flat 1 cent per gallon and rose to 1.5 cents a year

But that doesn't explain why gas prices most often are expressed in
nine-tenths of a cent, instead of, say, four-tenths or five-tenths,
though they occasionally are seen that way. It also doesn't explain
why the tradition persists. Back when gas pumps first emerged, saving
a penny on a 10-gallon purchase meant something. Today, who would
notice? So why not just price gasoline like everything else, in whole

'I have no logical argument why that wouldn't be a good idea,' said
the association's Gilligan. 'It certainly would seem to be simpler to
go to a flat, say, $1.59 a gallon.' Gilligan cautioned that any effort
to mandate whole-cent pricing should come at the national level, not
through individual states."

The Pittsburgh Post-Gazette

"Email from Chevron: 

Thank you for your e-mail to Chevron in which you inquired about the
$.009 used in pricing fuel at service stations.

I would first like to explain that the $.009 is not set by Chevron,
but rather, by the independent dealer. It is generally based on retail
prices prevailing in the marketplace. Chevron sells gasoline at the
wholesale level to independent dealers and each dealer sets his price
according to his own business judgment. The wholesale price may or may
not (and often does not) use $.009 in the price.

A dealer does not have to use $.009 in his pricing. Historically,
however, the $.009 has been used as a marketing tool by many dealers.
For example, rather than increase the retail price to the next whole
1.0 cent, a price of $1.59.9 may be more attractive to the price
conscious customer than $160.0. We suspect that Chevron dealers will
continue to set their prices or some other fraction of 1.0 cents as
long as competitors continue to do so. We do not know who first began
using $.009 pricing."

Worldwide Center for the Study of Leif 

Google Web Search: "price of gas OR gasoline" + "tenths"

Thanks for an interesting question! If anything is unclear, or if a
link doesn't work for you, please request clarification; I'll gladly
offer further assistance before you rate my answer.

Best regards,
giannandrea-ga rated this answer:4 out of 5 stars

Subject: Re: gas prices, fractions of $0.01
From: research_help-ga on 08 Apr 2004 06:57 PDT
Who says nothing else is allowed to be sold by the fractional cent? A
buyer and seller can agree to any price structure they want.  Gas is
not the only thing sold by the fractional cent.  It is up to the
market to decide if it works.  Also, whenever there is a tax or
interest or other calculation, the standard practice is to round up to
the nearest cent.
Subject: Re: gas prices, fractions of $0.01
From: giannandrea-ga on 08 Apr 2004 14:17 PDT
I guess I should clarify the question to be "is there any special law
or custom that enables gas
to br priced this way, what is the history of it and are there any
grounds to think its dubious".
It seems to me that since the price is always ending in 9/10th cent
that on average the consumer
is being bilked for $0.005 on every transaction at the pump.
As for the comment that interest is rounded up, that is not always
true.  Its common (and correct)
to round up if above .5 and down if below .5

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