The Peculiar Role of Gasoline in Consumers' Lives

Consumers watch the price of gasoline like no other product. As Valerie Folkes tells Robert Siegel, gas is unique. Folkes is a professor at the Marshall School of Business at the University of Southern California.


Gasoline is unusual among the things that we buy for a lot of reasons, and here to help us understand why we feel differently about the price of gas than we do about just of anything else is Valerie Folkes from the Marshall School of Business at the University of Southern California.

Welcome back to the program, Professor Folkes.

Professor VALERIE S. FOLKES (Vice Dean for Undergraduate Students, Marshall School of Business, University of Southern California): Thank you. It's nice to be here.

SIEGEL: Now, one big difference about the price of gasoline is that we actually pay attention to how much we pay for gasoline. You know, the price is inescapable.

Prof. FOLKES: Oh, yes, you can hardly avoid seeing that the price of gasoline is going up and down because, of course, the price was permanently displayed outside gas stations. That's very different from most products. For many products, it is sometimes very hard to find out what the price is. Say, in a grocery store, when you try to find out the unit price for a product, there's those various small stickers on the shelves. So it's actually hard to find out the prices of many of the products that we frequently buy.

SIEGEL: Something unusual about the gases that we - we need it. It's a necessity of life in America today.

Prof. FOLKES: That's right. It's one of those products for which there's called inelastic demands. So it's one of those things that we have to have, we have to buy it and there are a few substitutes for it. Yes, we can take mass transit or we could maybe ride a bike here or there. But really, once we invest in a car, we're obligated to buy gasoline to get the value out of that car purchase.

SIEGEL: You mean, as oppose to saying food is getting very expensive, I'll start buying cheaper kinds of food or...

Ms. FOLKES: Exactly, because - let's say the price of your favorite cereal goes up. Well, you can always shift to a different cereal or eat something different for breakfast, bacon and eggs. Not true for gasoline, you're stuck with buying gasoline. And you can't forward buy either. You can't stock up like you could if you knew that the - say, let's suppose that we know that the price of paper products is going up. A person might stock up on all sorts of paper towels or toilet paper, or Kleenex, but you can't really stock up in advance for gasoline.

SIEGEL: Gasoline also is a - is what people call the supplementary product.

Prof. FOLKES: Yes, it's one of those products that we have to have if we're going to enjoy our car. People really like their cars. And so, even though, in anticipation of the gas price is going up this summer, some people might switch to flying or going on a cruise for vacation. Still, people really want to enjoy their cars, and they have to buy that gasoline to enjoy the car. They're locked into that supplementary purchase.

SIEGEL: We can drive around and see the price of gasoline changed day-to-day, week-to-week, month-to-month. There are lots of other commodities in the world apart from petroleum that are changing in price. Why don't we always see those prices going up and down, and up and down in a supermarket?

Prof. FOLKES: That's a good point, and it's often because manufacturers can hide changes in prices by changing the amount that they sell off something. Let's take chocolate bars. The price of sugar or chocolate can vary, but the confectioner can mask that by slowly shrinking the size of the chocolate bar so people can feel like they're spending the same amount for a chocolate bar but the actual amount they get is less.

SIEGEL: You can decide to gas up your car when it's half-empty or wait until it's as low as possible. Do we have any idea which is more common among the people?

Prof. FOLKES: When prices go up, people do tend to wait to the very last minute. So as prices go up here, I think we will see more cars and more people will have - will run out of gas and be stuck on the side of the road.

SIEGEL: Oh, that's terrific. That won't help the price at all. Well, thank you very much for talking with us. Valerie Folkes, a professor of marketing at the Marshall School of Business at the University of Southern California. Thanks again.

Prof. FOLKES: Thank you. My pleasure.

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