Overcoming Bias

Share this post

Gas Arbitrage

www.overcomingbias.com

Discover more from Overcoming Bias

This is a blog on why we believe and do what we do, why we pretend otherwise, how we might do better, and what our descendants might do, if they don't all die.
Over 11,000 subscribers
Continue reading
Sign in

Gas Arbitrage

Robin Hanson
Dec 5, 2008
Share this post

Gas Arbitrage

www.overcomingbias.com
21
Share

When I bought my Miata the dealer told me to use premium gas, but my wife recently suggested I try regular.  At which point I considered midgrade gas, and noticed: one is better off mixing regular and premium than buying midgrade!  For regular, midgrade, premium, the $/gal. prices were 1.77, 1.92, 2.02 , while the octane ratings were 87, 89, 93.  So the first jump gives you 2 octane points for $0.15, while the second jump gives you 4 octane points for only $0.10.  Since mixing gas averages the octane ratings, if you mix 2/3 regular with 1/3 premium, you make your own midgrade gas for only 1.85, saving 0.07.  I then went searching and found this Feb ’08 paper:

Regular octane remains the product of choice for most consumers with an 82.2% market share in 2006.  Midgrade is a mature product with a 2006 market share of 9.3%. Premium’s market share ranks last at 8.4% in 2006. … Midgrade is a redundant product offering, easily and almost costlessly replicated by mixing existing regular and premium products. Indeed, this redundancy is widely known and exploited by … just-in-time mixing at the retail pump from separate underground regular and premium storage tanks. … It is rare to see a consumer create a midgrade by buying from two retail feedstocks at a single retail gas station. This is true despite the overwhelming evidence that consumer midgrade mixing is almost uniformly the least costly way to buy retail midgrade. …

Consider a midgrade buyer making a 17-gallon purchase.  With a 3.13 cents per gallon spread between the posted midgrade price and the cost of an equivalent mixture of premium and regular, the 17-gallon consumer saves 53.21 cents per fill-up. Assuming that scanning the same credit card a second time and changing hoses takes an additional 30 seconds, the savings would accrue at $63.85 per hour of mixing time. As this is an after tax savings, the before tax implied wage for a mixing buyer in a 40% combined marginal tax bracket would be $106.42 per hour risk free. While this savings reflects the nationwide average, it doesn’t necessarily indicate how lucrative mixing can be. A recent observation in the Los Angeles metropolitan area indicated a 20-cent spread from regular to midgrade and a 10-cent spread from midgrade to premium. The effective before-tax wage rate for a 17-gallon buyer’s mixing at this station is $340 per hour risk free.

Even with lower gas prices you’ll still make a handsome wage.  You can even avoid the extra changing costs if you alternate between filling half-empty tanks with regular and premium; you’ll alternate between midgrade and a gas halfway between midgrade and premium, and you’ll pay less than the midgrade price.  The amazing thing here is how eagerly people monitor gas station prices to save a few cents, and yet completely ignore grade rate savings.

Share this post

Gas Arbitrage

www.overcomingbias.com
21
Share
21 Comments
Share this discussion

Gas Arbitrage

www.overcomingbias.com
Overcoming Bias Commenter
May 15

@David

"accelerating up a steep hill"

True! The modern electronic engine management pushes back the timing best under certain conditions: generally flat roads, generally even weather, and little-old-lady-from-Pasadena driving. Let's say DC pretty much has the first two, for argument's sake. As for the third. . .not.

@mikesol

"it will actually get worse mileage and therefore require more gas and run less efficient in dollars/distance compared to just giving it proper fuel."

oh yeah: here.

Expand full comment
Reply
Share
Overcoming Bias Commenter
May 15

hear hear

Expand full comment
Reply
Share
19 more comments...
Top
New
Community

No posts

Ready for more?

© 2023 Robin Hanson
Privacy ∙ Terms ∙ Collection notice
Start WritingGet the app
Substack is the home for great writing