SPECIAL REPORT: Louisville's gas price game - WDRB 41 Louisville News

SPECIAL REPORT: Louisville's gas price game

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LOUISVILLE, Ky. (WDRB) -- After hovering near the $4 a gallon mark in 2014, Louisville prices have been steadily falling at Louisville area gas stations in recent weeks to well below $3, and Jose Fernandez, an associate economics professor at the University of Louisville, says we can look forward to more low prices. 

"The U.S. production has increased, also international production has increased," Fernandez said. "And, the price of natural gas is low enough that companies that previously used oil to do electricity or whatnot are switching over to natural gas."

But, you may have noticed that, even though the price of crude oil has steadily fallen for months, every week or so, gas mysteriously shoots up again.

You're not the only one who noticed. I checked prices going back three months on Gas Buddy,a website that tracks gas prices across the country. That's where I noticed a trend: every 7 to 10 days, there's been a jump: 13 cents on Sept. 8, 8 cents 10 days later and 9 cents eight days after that.   On Oct. 11, there was a 7 cent jump; 15 cents 11 days after that; and 10 days later another 10 cents; and the same jump a week after that. 

But, why? 

One man says it's all just part of a game, led by the biggest player in the market, Speedway.

Clemson University economist Matthew Lewis studied prices in 165 cities over a period of two years and found that this happens wherever Speedway has a market share of at least 10 percent. It's called "cycling."

He says it starts with stations all around the city aggressively undercutting prices. That drives down prices -- within a week or two prices can fall 10 cents or more. Then, when prices get too low, Speedway will raise their prices up 10 or 15 cents. Other stations follow that lead.

The information on Gas Buddy backs up Lewis's study. 

For the same three-month period, major cities like Ann Arbor, Michigan, Peoria, Ill, and Birmingham, Ala. had no big jumps like here. The number of Speedway gas stations in each of those markets: zero. 

Dr. Fernandez says the decision on how much to raise prices is carefully calculated.

"Now, they can't make the spike too big, because then Speedway consumers will say, 'Well, why am I going to Speedway, I'm going to go somewhere else.' But, they have to make it big enough so that loyal customers will still continue to go to Speedway and everyone else can move their prices up at the same time," Fernandez said.

Lewis says he actually doesn't think cycling is costing consumers more, since the money retailers are making at the beginning of the cycle is offset by the money they're losing at the end. In fact, he says, if you time it right, you could use cycling to your advantage.

"There's definitely an opportunity to pay lower prices for consumers who are paying close attention," Lewis said. "The difficult thing to predict is when the market is about to jump."

One way to do that is by signing up for Thorntons' text alerts that tell you when prices are about to go up. The company won't comment on how it knows that, but you can click here for more information.

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