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Premium Gasoline Overbuying in the U.S.: Consumer-Based Choice Analysis

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  • Setiawan, Winardi
  • Sperling, Daniel

Abstract

High octane gasolines, includang "premium" and midgrade, steadily gained market share in the United States during the 1980s, increasing from 12% of the total gasohne market in 1983 to 15% in 1985 and 30% in 1989. This 18% increase in market share represents an aggregate revenue transfer from U.S. consumers to industry of an additional $3 billion peryear. It is widely believed that many drivers do not gain any benefit from using premium gasoline. We review the substanual technical evidence underlying this presumption, and then analyze a survey of vehicle owners in New York and California to determine why people purchase premium gasoline, given that many of them recewe no clear benefit. We found that demand for premium gasohne is highly elastic, women and drivers in certain regions are more inchned to purchase premmm gasoline, income plays a minor role, and the benefits are poorly understood. Many people buy premium gasoline for rather vague reasons, not on the basis of strong evidence or justification.

Suggested Citation

  • Setiawan, Winardi & Sperling, Daniel, 1993. "Premium Gasoline Overbuying in the U.S.: Consumer-Based Choice Analysis," University of California Transportation Center, Working Papers qt2v86h1sp, University of California Transportation Center.
    • Handle: RePEc:cdl:uctcwp:qt2v86h1sp
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    1. W. Michael Hanemann, 1984. "Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(3), pages 332-341.
    2. David L. Greene, 1990. "Fuel Choice For Multi‐Fuel Vehicles," Contemporary Economic Policy, Western Economic Association International, vol. 8(4), pages 118-137, October.
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    Cited by:

    1. Roach, Travis, 2019. "Market power and second degree price discrimination in retail gasoline markets," Energy Economics, Elsevier, vol. 84(C).
    2. Justine Hastings & Jesse M. Shapiro, 2012. "Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks," NBER Working Papers 18248, National Bureau of Economic Research, Inc.

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