For the last month, Vineyard drivers paid close to a dollar more per gallon for gasoline purchased on Island than they would have paid off Island. Ten years ago the average difference was 56 cents and in the mid 1990s the difference was less than 50 cents per gallon. There are no clear reasons for this increase, according to local dealers.
They say their pump price is ultimately determined by what their suppliers are charging them, plus their costs and a small profit, and that their prices only change when they get a new shipment at a new price and have sold all of the previous lot.
The method used to set the pump price for many off-Island dealers is called “conscious parallelism” by economists — literally driving around to see what other stations are charging. Off-Island dealers in Falmouth interviewed by The Times said that their pump prices are determined by the prices their competitors charge, regardless of what they have paid for the gas sitting in their tanks. They say the competitive pressure is to sell more gas even if at a lower price. Their profits come from the volume of gas they sell.
Jeff Souza, manager of the Falmouth Service Center Mobile Station on Davis Straits in Falmouth, told the Times that his retail price is subject to change every day and that the price he pays for gasoline from his supplier has nothing to do with the price he charges. “I drive around every morning to check the prices at other stations. I almost always set my price by what the Stop & Shop next door is selling their gas for,” he said.
The difference between on- and off-Island prices changes from week to week due to a pricing lag-time on the Vineyard, according to Island retailers interviewed by The Times. Only at the Citgo at Xtra Mart, in Vineyard Haven, is the price set by a corporate office, according to Joe McCarthy, store manager. Xtra Mart’s gas comes from Drake Petroleum Company Inc., a subsidiary of Warren Equities which owns Xtra Mart. Xtra Mart’s prices are similar to other Island independent stations.
The Times asked Ralph Packer of Packer Oil in Vineyard Haven, who owns Tisbury Shell and supplies Menemsha Texaco as well as his own station, why there is a consistently increasing price differential between Island gas prices and off-Island prices. He replied, “I wish I knew,” before listing the usual reasons for higher Island prices, transportation costs, the lack of an economy of scale, and higher employee costs.
Competition for lower prices and more business does not seem to be part of the Island dynamic for most Vineyard stations. Only the Up-Island Mobile station appears to benefit from charging lower prices. Since the early 1990s when The Times began tracking and reporting gas prices on a regular basis, the Up-Island Automotive Mobil station has usually had the lowest prices on the Island. Occasional that honor will go to the Menemsha station and for a while the lowest prices were at what is now Xtra Mart when it first opened and was breaking into the local market.
The Up-Island station ups the ante from January through March when it knocks 20 to 25 cents off the price of regular on Sundays. There are regular customers who come from all over the Island to take advantage of their Sunday discount, according to co-owner Joan Jenkinson.
Ms. Jenkinson and her husband, Pat, have owned the Up-Island Mobil gas station for 43 years, since purchasing the station, that their son Pat now runs, from Albion “Beanie” Alley Jr. in 1970. “Whenever our price goes down from our dealer we go down, after we sell the gas from the previous delivery,” she said. “Usually just a few days. We get three to four deliveries a week during the summer.”
She said that they try to provide a service. “We make a certain margin to keep running, not to get rich: it’s only fair to the public. You can’t gyp the public. It’s not what we are in business for.”
“We aren’t making any money on Sundays. It’s enough to pay the kids who are pumping and that’s it. It’s been working for a few years. People love it, and some people buy only on Sundays. It’s a crazy time for the kids who are pumping.”
Off-Island, where a few cents can make the difference in how much business gas stations attract, installing self-serve pumps is a way of reducing the number of employees. Self-serve is not an option for drivers at any of the Island stations.
Ms. Jenkinson said that self-serve does not work at her station. “We won’t do that,” she said. “There’s too much that can go wrong. People drive off with their hose in the tank. Credit cards get stuck. It’s much more personal to have people wait on you.” She said some people must think that they are a self-serve station. “People stop at midnight who want to buy gas at our pumps, leave the hose on the ground, and drive away.”
The cost of Island living
Vineyard dealers like Ms. Jenkinson say that some of the increasing Vineyard price is due to an increase in transportation costs and the higher cost of living for employees on the Island who must be paid more than their off-Island counterparts. The increased costs of the fuel to power the trucks that carry the Island’s gasoline has climbed over the years as has the cost of the trip on the ferry.
There has been a threefold increase in ferry costs for trucks since 1994, according to Steamship Authority figures, but that is not enough to explain the difference. The cost of a roundtrip ticket for a 50-foot truck carrying gasoline was $208 in 1994. Today the cost is $652.50. For a truck carrying 10,000 gallons of gas, the size that J.P. Noonan Transportation of West Bridgewater brings to the Island, the per gallon cost in 1994 was 2 cents per gallon; today it’s 6.5 cents per gallon.
In the mid 1990s, according to prices posted in The Times, the price difference averaged less than 50 cents. For example, the week of September 22, 1994, the price of a gallon of regular was $1.50 at Depot Corner Mobil in Edgartown, $1.50 at Citgo Xtra Mart, $1.47 at Up Island Auto and $1.10 at Maxi Fuel in Falmouth.
During 60 months between 2003 and 2008, Islanders paid an average of 56 cents more for regular gasoline than for the same product on Cape Cod, according to data assembled and analyzed by Frank M. Gollop, an economics professor at Boston College. He was hired to prepare a report for a civil suit filed in Dukes County Superior Court in 2007 charging several Vineyard gasoline retailers with fixing fuel prices.
The suit floundered when a judge ruled that there was parallel pricing but no evidence of illegality. There was no evidence that the retailers had conspired to set prices.
Attorney Stephen Schultz, part-time Vineyard resident and one of the plaintiffs in the case, talked with the Times last week. He said the defendants in the case, the gasoline dealers, began their defense citing the higher cost of doing business on the Island as the reason for charging higher prices, but that apparently that strategy changed when they realized that all they had to defend was whether they had talked to one another about setting prices.
“My best memory is the transportation cost to the Vineyard was somewhere around 20 cents per gallon. There were arguments of higher overhead and cost of living. Then a switch in the defense to a conscious parallelism, which was a change from the cost argument they had made historically to the press. They knew they could not justify the cost from the expense standpoint.” He said that their attorneys apparently informed them that it is legal to charge what you want if you don’t actually speak to each other when setting the prices.
As it is for many Islanders, filling up the tank before returning to the Island from an off-Island trip is just a part of Island life for Wayne Guyther, owner of Hinckley’s Lumber in Vineyard Haven. He has two tractor-trailer trucks that regularly pick up material off Island. He was asked if he has a policy of filling the tanks before returning. “That would be a good policy, but it is something we do without needing a policy,” he said.
Gas prices creep back up
Gas prices kicked up in Massachusetts over the past week. AAA reported Monday that the price of a gallon of regular unleaded rose 3 cents to an average of $3.41 per gallon. The average price of a gallon of gas has risen 13 cents over the past month but is still lower than the $3.47 per gallon average that motorists in Massachusetts were paying a year ago at this time according to the State House News Service.
Gas prices on the Vineyard were holding steady this week. On Monday Xtra Mart and the Tisbury Shell Stations were selling regular for $4.30 while Menemsha Texaco and the Up-Island Mobil were charging $4.13.