Why do gas prices fall slower than oil prices?

Although dropping gas prices have put smiles on many drivers’ faces, others are unhappy because prices at the pump don’t seem to fall as fast as oil prices at the well-head. NC State University economist Mike Walden explains that it’s not a new phenomenon.

“It’s really not a new concern. Economists have observed this phenomenon — we call it an asymmetric price movement, to be technical — for a long time. And we now have evidence from the Federal Reserve, who recently did a study, that we are seeing the same thing over the last couple of years, which is to say, when oil prices are going up, gas prices really shift fast, but when oil prices come down, eventually gas prices come down but not a lot.

“Two reasons for this: One is is competition. We know there are a lot of retail gas sellers out there, but if you look at individual neighborhoods sometimes you don’t have you might not have as much competition as you might think, especially for gas stations that are in easy-to-access locations, and there people may be willing to spend a little more in order to get that access.

“The second reason is that we as consumers really take our eye off the ball when gas prices are coming down: We are happy. We are not going to be shopping as much for gas. The media perhaps doesn’t advertise where the best deals are. So that gives … the seller, I should say, a little more leeway in terms of bringing those prices down very, very slowly.

“This is certainly not to say that the low prices are not good for drivers, but, again, it’s a question of how fast do we get the low prices.”