NCPA - National Center for Policy Analysis


June 1, 2004

Consumers bemoan higher gas prices, yet legislation designed to prohibit "price gouging" harms consumers, say researchers.

In the debate over gas pricing, three characteristics have been targeted by policymakers:

  • Some state legislators are prohibiting "zone pricing," where refiners set different wholesale gas prices for different geographic areas; at issue is that in areas with fewer competitors, prices tend to be higher..
  • Many states are passing divorcement legislation, which prohibits refiners from owning and operating retail gas stations; such laws are designed to enhance competition but they often raise prices by creating a double price mark-up on gasoline.
  • Policymakers often blame price gouging for the fact that gas prices rise more quickly than they fall; however, the phenomenon, known as "rockets and feathers" is due more to supply restrictions and constraints on gasoline blends.

A study by economics professors Cary A. Deck (University of Arkansas) and Bart J. Wilson (George Mason University) concludes that legislation does little to affect prices and in some cases, actually raises prices:

  • In areas where zone pricing is banned and "uniform pricing" is required, customers in highly competitive areas paid almost 11 percent more for gas than in areas that allowed zone pricing.
  • Consumers in isolated, less competitive areas paid the same price for gas, whether it was zone priced or uniform priced.
  • In both highly competitive and isolated areas, customers paid less for gas at retail stations owned by refineries than in areas with divorcement laws -- 13.2 and 16.5 lower prices, respectively.

Source: Cary A. Deck and Bart J. Wilson, "Economics at the Pump," Regulation, Cato Review of Business and Government, Spring 2004, Cato Institute; and Cary A. Deck and Bart J. Wilson, "Experimental Gasoline Markets," Center for Interuniversity Research and Analysis on Organizations, March 2004.

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