Gasoline Prices: Why $2.189 and not $2.19; Why The Third Decimal Place?

by golbguru on December 28, 2006

This follows from my last post where the image displays the price as $1.379 per gallon but I write it as $1.38 in the post for a couple of times.

Almost everyone has seen this…and some of us must have observed this too. Gas stations always advertise prices with the third decimal place displayed (albeit in a smaller size). This has been going on for so many years that it’s almost in our blood :) and we never really care about it.

fuel1

When gas stations display the price as $2.189 our brain interprets it as $2.18 and not as $2.19 as it should; if look at your receipt…you were charged $2.19 not $2.18 or $2.189. Here is a scanned copy of a fresh receipt for one gallon of gasoline from a local gas station. In fact, it looks like the terminal rounds off the dollars faster than the gallons pumped….I filled in 0.999 gallons and the price was already $2.19 (quick note: if you back-calculate the cost per gallon based on $2.19 charged for 0.999 gallons, it turns out to be $2.192 per gallon).

fuel2

There are two aspects of this type of price display: psychological marketing and cheating.
All of you will be familiar with the marketing aspect employed by retail stores like Walmart/Target/HEB and others; most retail stores make use of price displays like $9.99 instead of $10.00. Our brain thinks in terms of $9 when the price is in fact $10. But, suppose I buy a non-sales-taxable food item at such a store for $9.99 and pay for it with a $10 bill, I will be charged $9.99 and a cashier will give back the 1 cent….they don’t round it to off $10. This type of price display is what I call “psychological marketing”.

Now apply this to gasoline; I buy a gallon of gasoline thats priced $2.189 and I am charged $2.19. Where is the $0.001 change? Can you give it back to me? Of course, we cannot give you back $0.001 because such a denomination does not exist in our currency. Well, that is precisely the reason why you cannot charge people in increments of $0.001, and that is precisely the reason why the price should be displayed as $2.19 and not $2.189. In my opinion, this three-decimal-places-price-display is not just “psychological marketing”; this is also cheating….so what if it’s just $0.001.

If you want to do that, why stop there? Why not display the price as $2.186 and round it off to $2.19..that’s also a valid rounding off. That way you can cheat people of $0.004 of unreturned change per gallon.
Again, it’s not a question of a lot of money when it comes to an individual filling up his tank, it’s a question of a senseless practice (unless I am missing something here). If you think of the 300,000,000 gallons of gasoline that is sold annually in this country, at $0.001 per gallon that comes to about $300,000 unreturned change per year…that’s enough to land someone in trouble.

I may have totally missed the bus here about why gas stations display prices in this manner; anyone has a better (correct) explanation (if there is one)?

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{ 38 comments… read them below or add one }

1 Kevin 12.29.06 at 8:33 am

Not trying to justify what they are doing here, since I think this practice is idiotic myself and we’re all getting screwed anyway. None the less, given current prices this this why it’s more efficient to wait till you need 10 gallons, or about a 1/4 tank or less, of fuel before you fuel up. Then, regardless of the price, you should round off nicely, not to mention you are driving around with less weight and saving what little bit of energy that can conserve.

2 Scott 12.29.06 at 8:36 am

What you are missing here is you’re theory only applies if you buy 1-5 gallon. If I were to buy say 6-10 gallons @ 2.189 than they would be truncating the tenth of a cent. (e.g. 6 gallons @ 2.189 would = 13.134 and I wouldn’t get charged the .004, they round up at the half.)

Is it entirely silly and pointless? Absolutely. Cheating? Hardly.

3 Brian Madden 12.29.06 at 9:08 am

Remember that a lot of people buy gas based on a money amount, not a quantity. For instance, when I ask for “$20 on Pump 2,” they give me $20 worth of gas, and as your receipt shows, the amount of gas dispensed is taken out to three decimal places. Also, your 300M calculation is assuming that all 300M gallons are sold individually, which is not the case. If someone buys 10 gallons, then that cent evens out again, so those 10 gallons are paid for in full. The bottom line is yeah it’s weird, but I don’t think that there is anywhere near $300k worth of overcharging.

4 Jeremy 12.29.06 at 9:10 am

If it does in fact round down when over — then it comes down to measuring when you win versus when you lose.

1 gal = 2.189 rounded to 2.19 (you lose 0.001c)
2 gal = 4.378 rounded to 4.38 (you lose 0.002c)
3 gal = 6.567 rounded to 6.57 (you lose 0.003c)
.
6 gal = 13.134 rounded to 13.13 (you gain 0.004c)
7 gal = 15.323 rounded to 15.32 (you gain 0.003c)
.
11 gal = 24.079 rounded to 24.08 (you lose 0.001c)
.
16 gal = 35.024 rounded to 35.02 (you gain 0.004c)

So I guess if you wanted to win big all the time, a good technique would be to always fill up to 6 10(n) gallons… it seems that after three times you would have won a penny from the gas station!

5 DB 12.29.06 at 9:57 am

Unless they just always round up…

6 MillGuy 12.29.06 at 9:59 am

Actually, you are wrong about the .001. There is a unit of currency, called the “mill” which is one tenth of a penny. However, while it exists, it was never minted. Therefore, it is possible to charge that amount, just not possible to return it as change. See: http://en.wikipedia.org/wiki/Mill_(currency)

7 Jon 12.29.06 at 12:30 pm

They don’t always round up. If the mills digit is 5 or higher, they round up to the nearest penny, otherwise they round down.
If you want proof, here is the info from 153 of my last 164 fillups (forgot to record 11 of them). This goes back to July, 2001. Cumulative overcharge due to rounding: $0.051629. Note that some of the below are displayed in scientific notation.

$1.699/gal * 13.504 gallons = $22.943296, rounded to $22.94. Overcharge of $-0.00329599999999886
$1.439/gal * 15.539 gallons = $22.360621, rounded to $22.36. Overcharge of $-0.000621000000002425
$1.489/gal * 15.218 gallons = $22.659602, rounded to $22.66. Overcharge of $0.000397999999997012
$1.431/gal * 15.521 gallons = $22.210551, rounded to $22.33. Overcharge of $0.119448999999996
$1.599/gal * 16.045 gallons = $25.655955, rounded to $25.66. Overcharge of $0.00404499999999786
$1.699/gal * 16.26 gallons = $27.62574, rounded to $27.63. Overcharge of $0.00425999999999505
$1.649/gal * 15.8 gallons = $26.0542, rounded to $26.05. Overcharge of $-0.00420000000000087
$1.519/gal * 16.712 gallons = $25.385528, rounded to $25.39. Overcharge of $0.00447200000000336
$1.429/gal * 16.01 gallons = $22.87829, rounded to $22.88. Overcharge of $0.00170999999999566
$1.369/gal * 15.526 gallons = $21.255094, rounded to $21.26. Overcharge of $0.00490600000000185
$1.319/gal * 15.766 gallons = $20.795354, rounded to $20.8. Overcharge of $0.00464600000000104
$1.299/gal * 13.78 gallons = $17.90022, rounded to $17.9. Overcharge of $-0.000219999999998777
$1.139/gal * 13.738 gallons = $15.647582, rounded to $15.65. Overcharge of $0.00241800000000048
$1.159/gal * 12.983 gallons = $15.047297, rounded to $15.05. Overcharge of $0.00270300000000034
$1.129/gal * 13.324 gallons = $15.042796, rounded to $15.04. Overcharge of $-0.00279600000000002
$1.219/gal * 13.101 gallons = $15.970119, rounded to $15.97. Overcharge of $-0.000119000000001535
$1.219/gal * 13.233 gallons = $16.131027, rounded to $16.13. Overcharge of $-0.00102700000000411
$1.199/gal * 12.862 gallons = $15.421538, rounded to $15.42. Overcharge of $-0.00153800000000182
$1.089/gal * 10.799 gallons = $11.760111, rounded to $11.76. Overcharge of $-0.00011099999999864
$1.199/gal * 13.003 gallons = $15.590597, rounded to $15.59. Overcharge of $-0.000597000000000847
$1.429/gal * 13.303 gallons = $19.009987, rounded to $19.01. Overcharge of $1.29999999991526e-05
$1.419/gal * 12.572 gallons = $17.839668, rounded to $17.84. Overcharge of $0.000332000000000221
$1.379/gal * 12.992 gallons = $17.915968, rounded to $17.92. Overcharge of $0.0040319999999987
$1.229/gal * 12.875 gallons = $15.823375, rounded to $15.82. Overcharge of $-0.00337500000000013
$1.289/gal * 9.868 gallons = $12.719852, rounded to $12.72. Overcharge of $0.000148000000001147
$1.379/gal * 12.603 gallons = $17.379537, rounded to $17.38. Overcharge of $0.00046299999999988
$1.379/gal * 12.946 gallons = $17.852534, rounded to $17.85. Overcharge of $-0.00253399999999715
$1.299/gal * 13.143 gallons = $17.072757, rounded to $17.07. Overcharge of $-0.00275699999999901
$1.299/gal * 13.143 gallons = $17.072757, rounded to $17.07. Overcharge of $-0.00275699999999901
$1.767/gal * 12.754 gallons = $22.536318, rounded to $22.54. Overcharge of $0.0036820000000013
$1.419/gal * 10.994 gallons = $15.600486, rounded to $15.6. Overcharge of $-0.000486000000000431
$1.299/gal * 12.61 gallons = $16.38039, rounded to $16.38. Overcharge of $-0.000389999999999446
$1.298/gal * 12 gallons = $15.576, rounded to $15.58. Overcharge of $0.00399999999999956
$1.299/gal * 12.876 gallons = $16.725924, rounded to $16.73. Overcharge of $0.0040760000000013
$1.329/gal * 12.807 gallons = $17.020503, rounded to $17.02. Overcharge of $-0.000503000000001919
$1.799/gal * 12.413 gallons = $22.330987, rounded to $22.33. Overcharge of $-0.00098700000000207
$1.529/gal * 12.98 gallons = $19.84642, rounded to $19.85. Overcharge of $0.00358000000000303
$1.499/gal * 12.869 gallons = $19.290631, rounded to $19.29. Overcharge of $-0.000631000000002047
$1.948/gal * 10 gallons = $19.48, rounded to $19.48. Overcharge of $0
$1.499/gal * 13.034 gallons = $19.537966, rounded to $19.54. Overcharge of $0.00203399999999831
$1.399/gal * 12.682 gallons = $17.742118, rounded to $17.74. Overcharge of $-0.00211800000000295
$1.539/gal * 12.051 gallons = $18.546489, rounded to $18.55. Overcharge of $0.00351100000000315
$1.799/gal * 12.605 gallons = $22.676395, rounded to $22.68. Overcharge of $0.0036050000000003
$1.799/gal * 12.878 gallons = $23.167522, rounded to $23.17. Overcharge of $0.00247800000000353
$1.759/gal * 13.459 gallons = $23.674381, rounded to $23.67. Overcharge of $-0.00438099999999508
$1.619/gal * 12.921 gallons = $20.919099, rounded to $20.92. Overcharge of $0.000901000000002483
$1.499/gal * 11.861 gallons = $17.779639, rounded to $17.78. Overcharge of $0.000360999999998057
$1.389/gal * 12.845 gallons = $17.841705, rounded to $17.84. Overcharge of $-0.00170500000000118
$1.449/gal * 12.67 gallons = $18.35883, rounded to $18.36. Overcharge of $0.00116999999999834
$1.399/gal * 12.881 gallons = $18.020519, rounded to $18.02. Overcharge of $-0.000519000000000602
$1.319/gal * 12.524 gallons = $16.519156, rounded to $16.52. Overcharge of $0.000844000000000733
$1.379/gal * 12.541 gallons = $17.294039, rounded to $17.29. Overcharge of $-0.00403900000000235
$1.499/gal * 12.162 gallons = $18.230838, rounded to $18.23. Overcharge of $-0.000838000000001671
$1.499/gal * 12.547 gallons = $18.807953, rounded to $18.81. Overcharge of $0.00204699999999747
$1.499/gal * 12.455 gallons = $18.670045, rounded to $18.67. Overcharge of $-4.50000000000728e-05
$1.599/gal * 12.048 gallons = $19.264752, rounded to $19.26. Overcharge of $-0.00475199999999987
$1.319/gal * 12.903 gallons = $17.019057, rounded to $17.02. Overcharge of $0.000942999999999472
$1.599/gal * 12.58 gallons = $20.11542, rounded to $20.12. Overcharge of $0.00458000000000069
$1.599/gal * 13.502 gallons = $21.589698, rounded to $21.59. Overcharge of $0.000301999999997804
$1.699/gal * 13.577 gallons = $23.067323, rounded to $23.07. Overcharge of $0.00267699999999849
$1.599/gal * 12.897 gallons = $20.622303, rounded to $20.62. Overcharge of $-0.00230299999999772
$1.699/gal * 12.944 gallons = $21.991856, rounded to $21.99. Overcharge of $-0.00185600000000363
$1.599/gal * 12.892 gallons = $20.614308, rounded to $20.61. Overcharge of $-0.0043079999999982
$1.679/gal * 12.346 gallons = $20.728934, rounded to $20.73. Overcharge of $0.00106599999999801
$1.809/gal * 12.373 gallons = $22.382757, rounded to $22.38. Overcharge of $-0.00275699999999901
$1.759/gal * 13.973 gallons = $24.578507, rounded to $24.58. Overcharge of $0.00149299999999997
$1.529/gal * 13.053 gallons = $19.958037, rounded to $19.96. Overcharge of $0.00196299999999994
$1.579/gal * 10.031 gallons = $15.838949, rounded to $15.84. Overcharge of $0.00105099999999858
$1.699/gal * 13.012 gallons = $22.107388, rounded to $22.11. Overcharge of $0.00261199999999917
$1.539/gal * 13.547 gallons = $20.848833, rounded to $20.85. Overcharge of $0.00116700000000236
$1.599/gal * 13.099 gallons = $20.945301, rounded to $20.95. Overcharge of $0.00469899999999868
$1.799/gal * 13.46 gallons = $24.21454, rounded to $24.21. Overcharge of $-0.00453999999999866
$1.679/gal * 12.526 gallons = $21.031154, rounded to $21.03. Overcharge of $-0.00115399999999966
$1.599/gal * 13.93 gallons = $22.27407, rounded to $22.27. Overcharge of $-0.00406999999999869
$1.699/gal * 13.558 gallons = $23.035042, rounded to $23.04. Overcharge of $0.00495799999999846
$1.699/gal * 12.499 gallons = $21.235801, rounded to $21.24. Overcharge of $0.00419899999999629
$1.869/gal * 12.288 gallons = $22.966272, rounded to $22.97. Overcharge of $0.00372799999999884
$1.699/gal * 12.16 gallons = $20.65984, rounded to $20.66. Overcharge of $0.000159999999997495
$1.699/gal * 12.363 gallons = $21.004737, rounded to $21. Overcharge of $-0.00473699999999866
$1.579/gal * 13.128 gallons = $20.729112, rounded to $20.73. Overcharge of $0.000887999999999778
$1.689/gal * 13.538 gallons = $22.865682, rounded to $22.87. Overcharge of $0.00431800000000138
$1.649/gal * 12.013 gallons = $19.809437, rounded to $19.81. Overcharge of $0.000562999999999647
$1.699/gal * 12.316 gallons = $20.924884, rounded to $20.92. Overcharge of $-0.00488400000000055
$1.829/gal * 12.523 gallons = $22.904567, rounded to $22.9. Overcharge of $-0.00456700000000154
$1.899/gal * 12.877 gallons = $24.453423, rounded to $24.45. Overcharge of $-0.00342300000000151
$1.879/gal * 12.75 gallons = $23.95725, rounded to $23.96. Overcharge of $0.00275000000000247
$1.929/gal * 12.391 gallons = $23.902239, rounded to $23.9. Overcharge of $-0.00223900000000299
$1.969/gal * 12.785 gallons = $25.173665, rounded to $25.17. Overcharge of $-0.00366499999999803
$2.099/gal * 12.523 gallons = $26.285777, rounded to $26.29. Overcharge of $0.00422299999999609
$2.249/gal * 11.955 gallons = $26.886795, rounded to $26.89. Overcharge of $0.00320499999999768
$2.099/gal * 12.603 gallons = $26.453697, rounded to $26.45. Overcharge of $-0.0036970000000025
$1.999/gal * 12.884 gallons = $25.755116, rounded to $25.76. Overcharge of $0.00488400000000055
$2.099/gal * 12.356 gallons = $25.935244, rounded to $25.94. Overcharge of $0.00475600000000043
$2.079/gal * 12.671 gallons = $26.343009, rounded to $26.34. Overcharge of $-0.00300900000000226
$2.129/gal * 12.472 gallons = $26.552888, rounded to $26.55. Overcharge of $-0.00288799999999867
$2.019/gal * 13.156 gallons = $26.561964, rounded to $26.56. Overcharge of $-0.00196400000000452
$2.169/gal * 12.347 gallons = $26.780643, rounded to $26.78. Overcharge of $-0.000642999999996618
$2.059/gal * 13.122 gallons = $27.018198, rounded to $27.02. Overcharge of $0.00180199999999786
$2.289/gal * 12.222 gallons = $27.976158, rounded to $27.98. Overcharge of $0.00384199999999879
$2.299/gal * 12.715 gallons = $29.231785, rounded to $29.23. Overcharge of $-0.00178499999999815
$2.389/gal * 11.75 gallons = $28.07075, rounded to $28.07. Overcharge of $-0.000749999999996476
$2.349/gal * 12.687 gallons = $29.801763, rounded to $29.8. Overcharge of $-0.0017630000000004
$2.229/gal * 13.021 gallons = $29.023809, rounded to $29.02. Overcharge of $-0.00380900000000395
$2.329/gal * 12.616 gallons = $29.382664, rounded to $29.38. Overcharge of $-0.00266400000000289
$2.359/gal * 13.493 gallons = $31.829987, rounded to $31.83. Overcharge of $1.29999999991526e-05
$2.349/gal * 12.903 gallons = $30.309147, rounded to $30.31. Overcharge of $0.000852999999995774
$2.339/gal * 12.292 gallons = $28.750988, rounded to $28.75. Overcharge of $-0.000987999999999545
$2.199/gal * 12.799 gallons = $28.145001, rounded to $28.15. Overcharge of $0.00499900000000153
$2.399/gal * 12.604 gallons = $30.236996, rounded to $30.12. Overcharge of $-0.116995999999997
$2.649/gal * 12.414 gallons = $32.884686, rounded to $32.88. Overcharge of $-0.00468599999999952
$2.859/gal * 12.851 gallons = $36.741009, rounded to $36.74. Overcharge of $-0.00100900000000337
$2.839/gal * 12.751 gallons = $36.200089, rounded to $36.2. Overcharge of $-8.89999999955648e-05
$2.659/gal * 12.77 gallons = $33.95543, rounded to $33.96. Overcharge of $0.00457000000000107
$2.999/gal * 12.717 gallons = $38.138283, rounded to $38.14. Overcharge of $0.0017169999999993
$2.699/gal * 12.775 gallons = $34.479725, rounded to $34.48. Overcharge of $0.000274999999994918
$2.599/gal * 12.715 gallons = $33.046285, rounded to $33.05. Overcharge of $0.00371499999999259
$2.459/gal * 13.042 gallons = $32.070278, rounded to $32.07. Overcharge of $-0.000278000000001555
$2.549/gal * 12.608 gallons = $32.137792, rounded to $32.14. Overcharge of $0.0022080000000031
$2.319/gal * 12.354 gallons = $28.648926, rounded to $28.65. Overcharge of $0.00107400000000268
$2.599/gal * 12.703 gallons = $33.015097, rounded to $33.02. Overcharge of $0.00490299999999877
$2.509/gal * 13.047 gallons = $32.734923, rounded to $32.73. Overcharge of $-0.00492300000000512
$2.749/gal * 13.226 gallons = $36.358274, rounded to $36.36. Overcharge of $0.0017259999999979
$2.909/gal * 12.468 gallons = $36.269412, rounded to $36.27. Overcharge of $0.000588000000007582
$2.899/gal * 12.81 gallons = $37.13619, rounded to $37.14. Overcharge of $0.00381000000000142
$2.899/gal * 12.546 gallons = $36.370854, rounded to $36.37. Overcharge of $-0.000854000000003907
$2.999/gal * 13.588 gallons = $40.750412, rounded to $40.75. Overcharge of $-0.000411999999997192
$3.049/gal * 12.529 gallons = $38.200921, rounded to $38.20. Overcharge of $-0.000920999999998173
$2.899/gal * 13.31 gallons = $38.58569, rounded to $38.59. Overcharge of $0.00431000000000381
$3.099/gal * 13.518 gallons = $41.892282, rounded to $41.89. Overcharge of $-0.00228200000000101
$3.099/gal * 13.139 gallons = $40.717761, rounded to $40.72. Overcharge of $0.00223899999999588
$3.179/gal * 12.464 gallons = $39.623056, rounded to $39.62. Overcharge of $-0.00305600000000084
$3.179/gal * 12.639 gallons = $40.179381, rounded to $40.18. Overcharge of $0.000619000000007475
$2.899/gal * 13.144 gallons = $38.104456, rounded to $38.10. Overcharge of $-0.00445599999999757
$2.919/gal * 13.857 gallons = $40.448583, rounded to $40.45. Overcharge of $0.00141700000000355
$2.919/gal * 13.253 gallons = $38.685507, rounded to $38.69. Overcharge of $0.00449299999999653
$2.839/gal * 13.706 gallons = $38.911334, rounded to $38.91. Overcharge of $-0.00133399999999995
$2.742/gal * 13.51 gallons = $37.04442, rounded to $37.04. Overcharge of $-0.0044200000000032
$2.559/gal * 12.856 gallons = $32.898504, rounded to $32.9. Overcharge of $0.00149599999999595
$2.399/gal * 12.182 gallons = $29.224618, rounded to $29.22. Overcharge of $-0.00461800000000068
$2.659/gal * 12.888 gallons = $34.269192, rounded to $34.27. Overcharge of $0.000808000000006359
$2.589/gal * 13.064 gallons = $33.822696, rounded to $33.82. Overcharge of $-0.00269600000000025
$2.459/gal * 14.03 gallons = $34.49977, rounded to $34.50. Overcharge of $0.000230000000001951
$2.699/gal * 13.475 gallons = $36.369025, rounded to $36.37. Overcharge of $0.000975000000003945
$2.499/gal * 12.22 gallons = $30.53778, rounded to $30.54. Overcharge of $0.00221999999999767
$2.519/gal * 13.764 gallons = $34.671516, rounded to $34.67. Overcharge of $-0.00151599999999519
$2.629/gal * 13.453 gallons = $35.367937, rounded to $35.37. Overcharge of $0.0020629999999997
$2.519/gal * 13.313 gallons = $33.535447, rounded to $33.54. Overcharge of $0.00455299999999426
$2.499/gal * 12.776 gallons = $31.927224, rounded to $31.93. Overcharge of $0.00277599999999723
$2.519/gal * 13.091 gallons = $32.976229, rounded to $32.98. Overcharge of $0.00377100000000041
$2.559/gal * 12.656 gallons = $32.386704, rounded to $32.39. Overcharge of $0.00329599999999886
$2.559/gal * 13.128 gallons = $33.594552, rounded to $33.59. Overcharge of $-0.00455199999999678
$2.539/gal * 13.027 gallons = $33.075553, rounded to $33.08. Overcharge of $0.00444699999999898
$2.499/gal * 13.256 gallons = $33.126744, rounded to $33.13. Overcharge of $0.00325600000000037

8 Randall 12.29.06 at 12:42 pm

I know what you mean. I went as far as to e-mail exxon wanting my money back. yet all they send me is a stupid thank you for your comments.
This link is to the full e-mail they sent me
http://www.drinkwithrandall.com/index.php?option=com_content&task=view&id=65&Itemid=2

9 Bitslicer 12.29.06 at 1:01 pm

Everyone here is really missing the history of the gasoline pricing. Today the extra $0.009 is a very small percentage of the gallon price. 50 years ago when gas was $0.299/gallon that extra 9 tenths of a cent was a much larger percentage. On the computer screens the extra amount is normally the same size as the rest of the price. On the display board in front of the station the 9 tenths is still small. Not sure what the cost would be but I am surprised that the display on the pumps do not have the tenths small also.

10 Robert 12.29.06 at 1:05 pm

Another thing with the price is when you drive by a gas station, what is the number you see on the sign? You don’t just see $2.189. You see $2.18 in big numbers, and usually a 9/10 in little numbers. So if you are just driving by, you only catch the big numbers. Think about it. When you are comparing prices, you never see the sign and say “Oh, that is $2.189″, you say “Oh, that is $2.18″. You know that the $.009 is there, but you just breeze over it.

11 Owen 12.29.06 at 2:08 pm

See here in Scotland they used to do that a lot but theyve now gone back to using the good old second decimal places. dunno why i guess you should look up the reason

12 Jason 12.29.06 at 2:28 pm

The third decimal place came from a tax on gas by the federal government. Though it works for the psychological factor too. Haven’t you guys noticed that there is no taxes charged for gas on your reciept other than the 0.009/gallon.

13 Markus 12.29.06 at 2:44 pm

Jason, there is a lot more taxes taken than .009/gallon.

Taxes by state…

http://www.usgaselectric.com/id42.html

14 Jason 12.29.06 at 2:57 pm

I’m aware that there is a lot more tax taken per gallon than that. But that is the origin. Thought that would be the simplest way to explain, sorry for the confusion. http://www.artba.org/economics_research/reports/gas_tax_history.htm

15 Shagomir 12.29.06 at 3:07 pm

It’s just a holdover from when a gallon of gas cost .039$ or .249$ a gallon. It’s got nothing to do with dishonest pricing policies. Charging in thousandths of a dollar (tenths of a cent) is common, and happens in other circumstances as well - calculating interest in banking and payment for cell phone services are two examples.

16 Stian 12.29.06 at 3:08 pm

I think Bitslicer has a point, at some point maybe the gasoline prices were announced as 29.9 cent - but once it tipped over $1 they kept the third decimal to avoid confusing people.

A similar situation could be observed in England as prices recently bumped over £1 and the stations needed to shuffle some decimal points around to fit all digits on the sign.

Anyway, you get a 4 digit precision of the petrol price, in a highly competitive market, in fact they probably use 5 digits internally to calculate tomorrows price. What you end up with is stations at $2.189 competing against other stations at $2.187 - which means tomorrow maybe they’ll jump down to $2.186, if you are a customer both days at either stations you won’t really feel the difference, but in the long term it gives a higher granularity and more freedom in a tough price war.

Imagine petrol prices using just two digits precision, if the current price is $2.2 it would be expensive for a competitor to jump down to $2.1 for the sake of competition only. In the current model, if today’s petrol price has increased by $0.003 from the supplier over night, the owner can increase the retail price by $0.004 to include some profits.

In your model, he would still get an increase from the supplier by $0.003, but would have to choose to either stay (and loose money) or go up by $0.01 (and loose customers). To avoid this problem he might as well have added those $0.01 already, so you get a $0.02 increase for a net $0.003 supplier increase.

Numbers are all made up. Use at own risk, etc.

17 Golbguru 12.29.06 at 3:31 pm

Shagomir: I understand the rounding part, no problems about that…but then round it off when you display the price and be consistent; banks round off interest, but that works both ways: $2.189 will be rounded to $2.19 and $2.183 will be rounded to $2.18; I want to check if this two way rounding happens like Jeremy says above…or it is always the rounding off always comes from the customers pocket.

0.999 gallons was just a demo fill-up I did for the post..usually I fill in more :)…for those who were wondering about that.

Scott I am going to try filling in different quantities in the coming week just to see what happens.

18 Stian 12.29.06 at 3:36 pm

Hm.. I notice now in other posts that the petrol stations announce their prices with the last “9″ fixed at all times.. so I guess lots of my wonderfully crafted arguments are not really valid. Ah well.

19 golbguru 12.29.06 at 3:45 pm

Jon: that’s quite a proof of 153 fillups. Saves me some time on verifying the two-way round off. How did you get those numbers? Just Excel? Coz, I never see the price anywhere with more than two decimal places (of course, other than the display).

20 tiredofbeingbroke 12.29.06 at 4:02 pm

You are right about the psychology part. I always just look at the 2.18.
When I purchase gas it is always say $20 worth.

21 In for a Penny 12.29.06 at 7:03 pm

I’ve often wondered this. Especially in the winter when I’m standing at the gas pump freezing, staring at the numbers.

22 guy 12.29.06 at 8:03 pm

where the hell are you buying your gas? gas in our state (WA) is like 3.29/gal, its cause for celebration in the streets when gas drops below $3/gal. so anyone complaining about gas prices soaring above $3/gal can go blow themselves.

23 BIGmog 12.29.06 at 10:39 pm

On the history channel I heard this tactics goes back to the early 1900’s. The Chicago Sun Times organized with local shops to do this so that people would always have change in their pocket so they could buy a newspaper on the street.

24 Jason 12.30.06 at 1:42 pm

Please. If anyone reads $2.189 as $2.18, they’re an idiot. When I see $9.99, I immediately think $10. I don’t fall for “psychological marketing,” and anyone who does deserves to pay a stupidity tax.

25 Jon 01.02.07 at 10:32 am

golbguru:

I keep an Excel spreadsheet on my PalmPilot, using DocumentsToGo (I originally did this using a program called TotalCar, but switched to Excel). Each time I fill up, I add a line to the spreadsheet. My car is a 1999, but I’ve only been doing this since I bought the Palm in 7/2001.
Each line in my post above is of the form “$A/gal * B gallons = $C, rounded to $D. Overcharge of $E”. A, B, and D are directly from the spreadsheet (i.e. from the receipt or the display on the pump). When I read your original post, I wrote a PERL script to calculate C by multiplying A and B, to find what the true, precise cost is. Then figuring the overcharge (E) was just a matter of calculating D - C.
I’d be happy to post a link to a textfile I exported from the spreadsheet, and to my PERL script, if you’d like.

26 golbguru 01.02.07 at 1:40 pm

Sure Jon, I would like to have that link to the text file. It sounds interesting…and you are getting me curious :)

27 Peter 01.17.07 at 4:24 pm

When fuel is dispensed, it is measured out to the third decimal place. Back when fuel pumps were mechanical, the mechanism that measured the amount of fuel dispensed required that the multiplication factor (the cost per gallon) have the same number of decimal places. While they could have just made this final digit zero, that would have been turning away perfectly good money. So they made it 9, since that is the highest value it could be.

This nonsense about being “overcharged” is just that. The cost of gasoline is advertised out to the third decimal, and anyone who cares to look will see that. Since no payment method is currently available for paying out less than one cent, the rounding takes place _after_ the final cost has been computed; furthermore, banker’s rounding is used as required by law (for an explanation of banker’s rounding, see http://en.wikipedia.org/wiki/Rounding). The end result is that you only pay the extra (rounded) cent if the final decimal place is rounded up, which happens on average every other time (this is the purpose of banker’s rounding - to ensure that all rounding cancels itself out over the long term).

For example, let’s say the price is $2.109 per gallon. If you pump 8.223 gallons, the total cost is $17.342307. If you pump 8.226 gallons, the total cost is $17.348634. Without getting into the details of banker’s rounding, the rounded figures for each of these figures is $17.34 and $17.35, respectively.

28 Thomas Anderson 02.22.07 at 7:38 pm

Appropriate rules for rounding are not programmed into gasoline dispensers in the U.S. Also, since whole numbers in the gasoline price constantly change whereas the fractional portion of the price always remains 9/10 cent the industry wide practice of fractional cent pricing could be considered collusion. Currently 8 states have pending legislation prohibiting fractional cent pricing of motor fuel (http://www.users.qwest.net/~taaaz/AZgas.html)

taaaz

29 Flame 04.05.07 at 2:40 pm

* If you dont think you are being cheated, consider this. The pump calculator ignores the third decimal. It doesn,t round up. It just adds a penny to the listed price. Try this - pump exactly ten gallons. If the price is 2.499 then you should be charged $24.99. Right? However, you will absolutely see $25.00. Hmmmm……
Also, in the us, gasoline is sold by volume. An engine burns gas based on it’s density, or weight. In Canada the price is corrected for fuel temperature. Hmmmm……
The petroleum companies use an unrealistic assumed temperature for the most of the USA for most of the year when calculating fuel volume. Hmmmm……

30 G.Wright 06.14.07 at 7:03 am

Just thought I’d chime in, used to work for a petroleum equipment distributor. I personally programed most of the dispensers in Ohio. Anyway, yes, you are getting screwed on the fractions, in more ways than one though. Rounding is programmed by charts, using tables as required by law. The tax is also computed via tables, not rounding, compounding the problem. However, nobody is getting screwed as much as the owner of the gas station… Say he pays for 10,000 gallons of gasoline. When it is delivered, in a hot tanker truck, it is dumped in a cool underground storage tank, where it shrinks… Suddenly 70 gallons is just….gone! Yet he still pays for the full 10,000 gallons. Really, gasoline is sold like a commodity, and as such the price changes multiple times a day anyway. Temperature compensation is done at gas stations, to determine if there is a leak only, but is not considered when despensing. Underground storage tanks are pretty much a constant temperature year round, and your gasoline is coming out of the ground cold, expanding in your tank, giving you acutally more gasoline. By my estimations, on a full tank fill up, you receive probably 1/10 of a gallon more gasoline than you paid for by the time the gasoline expands in your tank… Which more than compensates you for your fractional cent lost. Hope this makes you feel better! :)

31 Kenny 06.28.07 at 5:37 am

This rounding seems to work in your favor if you buy 6-10 gallons, 16-20 gallons at a time. However, my Corolla has a tank that’s about 12 gallons, so when I run low, I’m normally putting in more than ten but less than eleven gallons. This rounding has worked against me for most of my stops at the gas station!

Do you think maybe the car manufacturers have a deal with gas stations to make sure automobile gas tanks normally get filled up in multiples of 1-5 gallons, so the stations can get those extra few pennies per year from each driver?

…But G. Wright’s post above eases my mind. And there are better things to worry about, really. Although gas is a hot topic and I dwell on it more than I should myself, too…

32 Jim 07.06.07 at 11:23 am

If you don’t think about it, it isn’t a problem. If you think about it hard enough, it makes sense and isn’t a problem. If you think about it just a little, it’s an evil conspiracy. :)

G.Wright shows that physics is a bigger issue than rounding errors.

Flame shows that the “1-5 gal = bad / 6-10 gal = good” theory only works if you pump exact gallons. Bankers rounding means it should average out to fair in the long run.

Jon shows that at least where he buys gas they very much do round down as well as up.

I use that “have a penny/need a penny” cup thing at the checkout sometimes, and over the course of a year I bet I put an extra dollar or two in. Somebody’s pocketting all that extra change of mine!

33 nonconspiracytheorist 05.21.08 at 1:31 pm

two things…
1) If one pumps 10.000 gallons @ $3.999/gallon, the sale will total $39.99…not $40.00. I’ve tried this.

2) While I, too, am curious as to why the extra $.009 is part of listed prices, I can’t help but laugh at people who want to pump JUST enough (but not too much) so as to not lose that coveted penny.

As gas prices continue to skyrocket in price, that “lost” penny represents less and less fuel. And to then feel it necessary to apply algorithmic formulae to the dispensation of petroleum into one’s tank to (perhaps) maximize the transaction into their favor, and avoid being robbed by “the man” is extremely amusing to me. Sometimes one loses a penny, sometimes one gains a penny. It’s all a wash.

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