ChatGPT for Gas Prices?

Comment on the July 18 posting: We got through last weekend without a hike, and I thought that meant we were safe. But, prices rose last Tuesday to $3.99, which meant “If so, I think they’ll keep it under $4” was accurate.

Saturday, July 27, 2024, 3 PM: As noted here and elsewhere, a violent storm nearly two weeks ago took out the second-largest refinery in the Midwest. As far as I can tell, that refinery is still offline, but a combination of imports from other parts of the country and a selloff in oil prices last week has started to put downward pressure on wholesale prices. Consequently, depending on where you drive, you can find gasoline at $3.89 or even lower. I predict we’ll see prices continue to slide, and once Joliet is back up and running, maybe $3.25 somewhere?

While recent price action does seem to match our idea of supply and demand, I’ve commented earlier this year that price dynamics have not been following our Gas Game script for a while. Prices aren’t dropping as low before a hike as they would in the past, and the hikes are higher above wholesale than they used to be. It has made me wonder if there is some other cost being added in that I am not aware of. While sitting on the beach recently, I came up with a different theory, tied to greed: AI.

In a 2022 article about the pricing of apartment rentals, ProPublica described how landlords in larger cities have been using an AI-infused program called AI Revenue Management (a.k.a., YieldStar) to make decisions about the rents they charge. Key excerpt: “The company had been seeking occupancy levels of 97% or 98% in markets where it was a leader. But when it began using YieldStar, managers saw that raising rents and leaving some apartments vacant made more money.” YieldStar works by collecting rental data from throughout the market and using AI to make recommendations.

I have no evidence for this, but what if one or more of the retailers have started using some sort of AI Gasoline Price Management software this year? This software would constantly monitor prices throughout the Midwest (like GasBuddy does via crowdsourcing) and then make some calculation that higher prices might be worth the trade-off in number of customers or positive reputation. Particularly when you consider the way competition works, or doesn’t work, in retail gasoline, this might be a good money-making strategy.

If that is the case, then note that the people who own or run the retailers aren’t talking to each other — in other words, there is no obvious collusion. But, to quote the ProPublica article, “Is it OK for a guy named Bob to collect confidential price strategy information from all the participants in a market and then tell everybody how they should price? If it isn’t OK for a guy named Bob to do it, then it probably isn’t OK for an algorithm to do it either.” In other words, the collusion would occur in the software.

Like I said, I have no evidence for this, but starting to wonder why this year of ChatGPT has also been a year of a change in gas price dynamics.

On the other hand, if I just suggested an idea for a new company to sell to the retailers, then I’m sorry. -EA

Updated: July 27, 2024 — 3:32 pm

4 Comments

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  1. $3.35 minus a nickel for the speedway discount game in Anderson Indiana. Much better than $3.79 spike last week. Hope to find under 3 bucks at a price war soon. No long road trips since Covid lockdowns. Got use to not going at this point so someone else will have to burn this expensive fuel.

  2. Seeing GetGo hiking to $3.699 in central Indiana.

  3. GasBuddy dropped a bomb on their web page.
    No more easy looking before I leap. Mobile site is like tunnel vision. They need to take the blinders off the consumer. OPIS still own it?

  4. That really would be peak capitalism for a crowdsource tool purporting to save consumers money being used to more creatively exploit the consumer out of a greater sum of money.

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