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Mark-up of gas 13 years 4 months ago #2873

  • monkey44
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We were talking about the .06 minimum mark-up on gas --

I assume that the large volume gas purchaser (like any business) gets a wholesale discount --

Brings up a question -- if the "big guys" and the "little guys" both require a .06 minimum mark-up (Oklahoma law, per that other thread), and if the "big guys" buy gas for less due to volume, then in reality, that law doesn't help the little guys much. If the big guys buy gas for $3.00 (based on large volume) and sell for $3.06, and the little guys buy for $3.03 (based on volume) and must sell for $3.09, then the little guys still must sell higher -- so that law makes no sense to me ... unless everyone buys for the same price, somehow -- and I guess I'm not exactly sure I'm understanding how the minimum .06 mark-up works ... and/or if all wholesale gas is a fixed price no matter the volume -- So can anyone comment or explain this in a little more detail ?? ... I mean that Oklahoma law for example??

The cost of gas is getting a little out of hand, of course, but I'd sure like to understand the reasoning behind that mimimum mark-up and why is should help the little guy price, but seems unworkable to me.

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Re: Mark-up of gas 13 years 4 months ago #2875

  • utmtman
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Its not supposed to make sense. But if you look at the big guys they have multi chains of stations all over the US example Walmart. Thats why they can sell under the other people. You will also find that some people charge more than others because they have to actually pay more for their name brand gas. Example here is Cowboy Oil in Utah, its a Utah refinery that refines Utah oil to gas. They sell to a lot of the Utah market but even with that Utah has to charge a price equivalent to a percentage of the average for this area. But the big name companies like Sinclair, Chevron, and so oh have to pay for gas from Sinclair, Chevron and so on and they pay based on the major market price.
Back in the 60's there were gas wars and that is what brought on this price setting. Some stations would sell under the purchase price to get more sales because with a percentage of sales one will also sell cigarettes, pops, groceries and so on.
But to prevent gas wars they all have to charge to the public that percentage. Ok lets put figures on it now. The Utah wholesaler sells his fuel for 3.00 a gal the big name wholesaler sells it for 3.05 a gal. Now the law says you have to stay within a limit so the small retailer sells his gas for 3.06 and the big name seller sells for 3.11. Now the big multi chain pays a national fee of 2.55 gal. because that is the low rate based on the cheapest gas in the country. But he cannot sale below a set percentage so here he will sale it for 3.01 a gal. Maybe in Louisiana he would sell it for 2.95 and in Calif for 3.75. No matter how you look at it he is making money on it.
Now I dont know about other states but in Utah a few of the major gas wholesalers are located in Wyoming example Sinclair. But its not a refinery they are getting the fuel from in Wyoming its a tank storage area where the gas is stored after being refined in Canada and sold to the US and piped to Wyoming.
I hope this make sense to you and tells you how it works.

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Re: Mark-up of gas 13 years 4 months ago #2880

  • oldchief46
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Lee, you pretty much got it right. I can remember the gas wars here in Oklahoma. When I started driving the going rate for gas was around 26 cents a gallon. A couple of stations in our town, that were next door to each other, would really go at it, sometimes getting down to 18 cents a gallon. They would sell for less than cost trying to drive the other guy out of business. That was in the day of many, little independent gas stations. Now, with all the big guys out there, it would be easy for one of them: Shell, Wal-Mart, etc., could easily sell below cost until they were the only one left in town. Thus, the Oklahoma Corporation Commission requires all retailers to sell for at least 6 cents above their cost.
Rick Stone, YNC, USN(RET)
2007 Monaco Cayman XL
2006 Chevy HHR
oldchief1.blogspot.com

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Re: Mark-up of gas 13 years 4 months ago #2881

  • monkey44
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Still not sure I understand why that rule helps the little guy -- I must not "get it" yet ...

(Imaginery costs) If the big guys buy for, say $2.80 a gallon, and the little guys buy for $2.90 a gallon, and each of them must mark-up .06 a gallon, then big guy must sell for $2.86 and little guy must sell fo $2.96, that doesn't help the little guy. The big guy can still run the little guy out of business, even when the mark-up is constant.

And utmtman -- if I understand you correctly, the wholesaler sells to himself in certain areas so that he can mark-up to the minimum -- I'm sure I'm missing something, because that should be illegal based upon circumventing the law.

Quote: "They sell to a lot of the Utah market but even with that Utah has to charge a price equivalent to a percentage of the average for this area."

Which is different than selling at a minimum .06 above cost. So we have different rules in different areas, and those rules can be exploited buy multi-state corporations (as usual) ... and, don't get me wrong here, I'm not against anyone making money in this country, but I am trying to understand why the little guy says he can no longer make money selling gas.

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Re: Mark-up of gas 13 years 3 months ago #2928

  • utmtman
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Because the little guy can only buy one tank at a time and he pays the going rate for where he is. Example here he may be paying 3.00 a gallon say. Ok he cannot sale for more than the going rate of say 3.05+-.06 so he sells for 3.11. Ok the big guy buys by bulk of 600 tanks at a time. He gets a multi sell and use discount of say 2.00 a gallon. He can afford to sell around the required but yet under it say 3.00. So he sales to the majority cuz most pay for the cheapest price the small guy has to survive and cannot go that low. He goes broke due to lack of sales.

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