Why does the listed price of gasoline always end with "9/10"?

by | Dec 14, 2009 06:00 AM ET

You Asked:

Why does the listed price of gasoline always end with "9/10"? --- Edward, Redmond, Wash.

Marshall Brain Answers:

It appears to be a tale of capitalism combined with a lack of attention to detail on the part of most humans.

The practice started long ago for reasons that seem to be forgotten. But imagine that you are the owner of a gas station selling gas for 20 cents a gallon. You are competing with the station across the street. You would like to make more money but you can't charge more than 20 cents a gallon without losing all your customers to your competitor.

But if you add a fraction of a cent to the price of your gas, so it is 20.9 cents, human beings have a tendency to ignore the change. You may ignore it every day - when you are shopping for gas you see a sign that says $2.79 per gallon... You probably do not internally say, "well, it's really $2.79 + 9/10 which really means $2.80". Many people (most?) ignore the 9/10.

And so it was when gas was 20 cents a gallon. Except at 20 cents a gallon, the extra 9/10 is a 4.5% price hike. You may also be able to see that, decades ago when gas prices were much lower, fractional cents pricing would make a lot more sense. If gas is 10 cents or 20 cents a gallon, a full penny price increase is huge on a percentage basis. Fractional cents pricing would allow smaller price increases and decreases.

Even today, as pointed out in this article, the 9/10 part of the price adds up to hundreds of millions of dollars. It makes you wonder why the practice hasn't spread to grocery stores, discount stores, etc.

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