Connecticut Legislators Debate Cash Discounts For Gas

I think someone needs a math lesson.

The Courant has an article about Connecticut legislators’ latest attempt to “fix” the state’s honor of having the highest gas prices in the country:

Gasoline prices could drop 10 to 20 cents a gallon if the legislature passes a bill Wednesday that would allow stations to offer cash discounts.

With the support of Republican Gov. M. Jodi Rell and Democratic legislative leaders, the bill will be debated at a time when lawmakers are under increasing pressure to do something — in an election year — about gasoline prices that have blown past $4 a gallon. A special legislative session is scheduled for Wednesday to debate the cash discounts and other issues.[...]

Insiders could not agree Monday on exactly how much consumers could save at the pump, saying that the final prices would be set by the retailers. Attorney General Richard Blumenthal predicted the savings at 10 to 12 cents a gallon, while Fox said that it could be as high as 20 cents. Among the tiny number of stations currently offering discounts, the average savings is now 16 cents a gallon, Fox said. A Hess gasoline station on the Berlin Turnpike was offering a discount of 20 cents a gallon Monday for cash customers.

I see one major flaw in the article and premise of such a measure — there is no such thing as a free lunch.

Currently, gas stations have the expense load coming arising from credit card transaction fees baked into the prices  they charge.  So, if a gas station started offering a discount to cash customers, the revenue to fund that discount would have to come from someplace else — specifically, the prices charged credit/debit-card wielding customers.

A numeric example:

Assume, for the sake of simplicity that 50% of all gas customers pay by plastic.  (That’s a made-up number; I don’t know what the real stat is, and Google isn’t being helpful.)   Assume also that gas is running $4.35/gallon and that credit/debit transaction fees are 5%.

So, that $4.35/gallon could be broken down as:  4.35 ÷ [1+(5%×50%)] = 4.24 in actual underlying cost for gas, and $0.09 in “plastic load”.

If a gas station were to go to a two-tiered cash vs. plastic pricing system, then arguably it could charge $4.24/gallon to cash customers, and (4.24×1.05)=$4.45/gallon to credit card customers.

In reality, the actual prices would obviously vary.  Some gas stations might see some additional revenue bump from having additional customer traffic inside the store (rather than many folks just paying at the pump), but perhaps there would also need to be an offset due to a possible need to hire an extra cashier to handle the additional cash business, etc., etc., etc.

Also lost in the discussion is the fact that many people (myself included) prefer to use plastic these days rather than cash because of the fees associated with withdrawing funds from ATMs (true, they can be avoided, but…), as well as the rebates we get for card use.

And finally, we still have the matter that higher gas prices are still not necessarily a bad thing, if they get people to adopt a conservation-oriented mindset, start living in a more sustainable manner, and stimulate growth in new/alternative power technologies.   I realize that that’s a difficult argument to stomach when filling up a gas tank will seriously eat into your gadget budget, but maybe it’s worth listening to the global warming hype (and to consider that air temperatures in New England are flirting with 100°F a week and a half before the official start of summer) to consider why some pain now might do us all some good in the long term.