Question

Gasoline stations located in close geographic proximity (e.g., across the street from one another) often charge different prices for the same octane gasoline. Does this reality undermine the logic of competition, the market process, and the law of one price? If your answer is “yes”, explain why using economic reasoning. If your answer is “no”, provide three economic reasons why we might observe such price differentials.

Answer 1

GASOLINE STATIONS LOCATED IN CLOSE GEOGRAPHIC PROXIMITY OFTEN CHARGE DIFFERENT PRICES FOR THE SAME OCTANE GASOLINE . YES THE DO UNDERMINE THE LOGIC OF COMPETITION THE MARKET PROCESS AND THE LAW OF ONE PRICE .

BASICALLY THER ARE UNDERMINING THE MOST ESSENTAIL FEATURE OF PERFECT COMPETITION MARKET WHICH STATES THE PRICE OS THE INDUSTRY IS DETERMINED BY THE MARKET FORCES OF DEMAND AND SUPPLY WHERE GOODS SOLD ARE IDENTICAL AND PERFECT COMPETETION AMONGST SELLERS EXIST . NO INDIVIDUAL SELLER CAN DETREMINE OR CHARGE PRICE HIGHER OR LOWER FROM OTHER SELLERS . THEY CAN ONLY DIFFERENTIATE OR ACHIEVE A HIGHER POTENTIAL OR WE CAN SAY MAXIMUM BUYERS FROM THE MARKET BY PRODUCT ORIENTATION OR MAKING THEIR GOOD AND SERVICES DIFFERENT FROM THOSE OF THE RIVALS .IN THIS CASE OF OCTANE GASOLINE THE SELLERS CAN PROVIDE ADDITIONAL SERVICES TO THEIR BUYERS AND CUSTOMERS AT THEIR PUMPS INSTEAD OF CHARGING DIFFERENT AND HIGH PRICES FOR THE SAME PRODUCTS .