<p>Many economists like to assume perfect information but that is not reality.</p>

<p>A long distance traveler is unlikely to have information on which petrol stations are cheapest in the area. They will have a vague idea that petrol stations off the highway are likely to be cheaper but they also know that leaving the highway and driving around town looking for cheap fuel will burn time and fuel.</p>

<p>Therefore the petrol stations that serve travelers can get away with charging a premium over the "going rate" (those on main roads and especially motorways).</p>

<p>Of course there is a limit, the traveler will probably have some idea what the going rate for fuel is and a threshold over which they will say "screw that" </p>

<p>A local in most areas has much better information, they will probably have a familiarity with most of the local petrol stations and will usually have a choice of several alternatives. So to keep their customers petrol stations that serve locals generally have to sell the petrol at barely above cost.</p>

CC BY-SA 3.0
2016-07-07T21:11:01.867Z
"Many economists like to assume" perfect competition. If it is profitable to sell fuel by the highway, more gas-stations will open...
snoram
CC BY-SA 3.0
2016-07-08T13:13:51.960Z
@snoram: ...if the expected profits, appropriately discounted, exceed the cost of entry. Which is rather large (gas stations cost money to build) and mostly non-recoverable (nobody wants to buy an old unprofitable gas station), making the market far from perfectly competitive. The limited information and inelastic demand don't really help either.
Ilmari Karonen
CC BY-SA 3.0
2016-07-09T08:46:26.690Z
In some cases, there are signs showing the current price of fuel in the next 2-3 petrol stations along the road, apparently in an effort to foster competition. But the price is still high(er) in these places, as far as I can tell, which makes me doubt whether incomplete information or Ubiquitous' points fully explain the price discrepancy.
Relaxed
CC BY-SA 3.0
2016-07-07T20:12:35.163Z
2016-07-07T20:12:35.163Z
Peter Green
<p>Convenience premium.</p>

<p>The market prices in a premium for convenience. This explains why hot dogs cost more inside the ballpark than at the convenience store outside the ballpark. And why convenience store goods cost more than those sold at the supermarket.</p>

<p>Put another way: Part of the cost of an item is not just the cost of materials and labor to get it there, but there is also a cost of <em>availability</em>. In other words, when you don't purchase the gas on the highway, the cost of it being available there is still present. Which you pay when you buy.</p>

<p>Note: This answer agrees with the price elasticity explanation given by @Ubiquitous but avoids the <strong><em>price elasticity</em></strong> concept in favor of the perhaps more lay concept of <strong><em>convenience premium</em></strong>.</p>

CC BY-SA 3.0
2016-07-06T18:32:47.287Z
2016-07-06T23:38:22.840Z
2016-07-06T23:38:22.840Z
FreeMarketUnicorn
<p>There are two separate groups of customers for fuel: private individuals and commercial businesses. </p>

<p>The drivers of most vehicles used for business are not paying for the fuel themselves, so they are more influenced by the convenience of using fuel stations that are easy to find and are on the routes that they are already driving - i.e. on main roads.</p>

<p>In the UK, fuel prices are often higher on motorways than on other main roads, because commercial drivers using a motorway for high speed journeys are not going to waste time by leaving the motorway to buy fuel and then returning to it.</p>

<p>On the other hand private individuals are more likely to search out cheap fuel, especially if they can buy it easily while making some other car journey.</p>

<p>That explains why in the UK, the large supermarket chains sell relatively cheap fuel compared with "main road" prices. Most private motorists regularly visit supermarkets by car to shop, and while they are there it is convenient to buy fuel as well. The supermarket needs a large area of land for the store itself and for car parking, and the extra space needed for a fuel station is small. They can offset the reduced profit margin from their cheaper fuel price by the increase in sales volume, and encourage customer loyalty by including fuel sales on their store loyalty cards and similar promotional offers.</p>

<p>Incidentally, <em>non-commercial</em> professional drivers sometimes <em>do</em> search out cheap fuel. At my local supermarket, it's quite common to see a police car, and sometimes even an ambulance, filling up at the pumps.</p>

CC BY-SA 3.0
2016-07-07T02:39:18.393Z
2016-07-07T02:39:18.393Z
alephzero
<p>Two possible reasons:</p>

<ol>
<li>There is higher demand on the highway. </li>
</ol>

<p>People on the highway are willing to pay more to stay on the highway (leaving to find another gas station will take time, they might not be familiar with the area, or other reasons). Since they're willing to pay more, the gas stations charge more. </p>

<ol start="2">
<li>Lowering prices might not increase profit. </li>
</ol>

<p>Lowering the price might increase the quantity of gas or petrol sold, but it might not increase the quantity enough relative to the decrease in price. For example, dropping the price by 10% might only increase the amount of gas sold by 5%. Your overall revenue would decrease. </p>

CC BY-SA 3.0
2016-07-06T17:58:30.397Z
The first point is absolutely valid but there is no explanation why the second point would apply on the highway and not elsewhere.
Giskard
CC BY-SA 3.0
2016-07-06T18:37:54.897Z
The second point is valid everywhere.
Kontorus
CC BY-SA 3.0
2016-07-06T18:45:28.650Z
@denesp This  might be country-specific, but in some areas, businesses near highways can have extra taxes, land can be of higher value, there could be greater expenses transporting workers to workplace at highway etc.
AndrejaKo
CC BY-SA 3.0
2016-07-06T18:46:47.040Z
@AndrejaKo And that sounds fine and reasonable. I am just pointing out that Kontorus 2. point does not explain why there would be a difference in prices.
Giskard
CC BY-SA 3.0
2016-07-06T18:49:40.340Z
@denesp I do agree with that point.
AndrejaKo
CC BY-SA 3.0
2016-07-07T06:24:17.527Z
The second point makes sense if we rephrase the question (without changing the meaning, I'd say) to "Why don't they sell fuel on the highway for the same prices they sell it for elsewhere?"
Mathieu K.
CC BY-SA 3.0
2016-07-06T17:43:31.997Z
2016-07-06T17:43:31.997Z
Kontorus
<p>Because there is no indication in your question that you are a student or practitioner of economics, I am writing an answer for a lay audience. Let me know if you would like more technical detail.</p>

<hr>

<p>A fairly general prediction from economic models of competition between firms is that the price that maximises their profit is higher the less sensitive is demand to that price (this sensitivity is measured by the "<a href="https://en.wikipedia.org/wiki/Price_elasticity_of_demand">price-elasticity of demand</a>"). Intuitively:</p>

<ul>
<li>if demand is very sensitive to price then a cut in price will cause demand to increase a lot. The firm receives less for each unit it sells, but sells very many more units and is better-off overall.</li>
<li>if demand is not sensitive to price then the firm can increase price without causing its sales to fall very much and will therefore wish to do so.</li>
</ul>

<p>There are lots of things that affect the sensitivity of demand. One example, as DornerA mentioned in a comment, is geographic location. If the nearest competing seller is very far away or inconveniently located then buyers will be reluctant to shop elsewhere, meaning their demand is likely to be less sensitive to price increases at locations that are geographically isolated in some way. This seems like a reasonable way to think of highway fuel stations.</p>

<hr>

<p>A little thought should convince you that the same principle (that prices are higher when demand is less sensitive) holds for other cases where demand is price-insensitive too. For example:</p>

<ul>
<li>why is food so expensive on trains/airplanes?</li>
<li>why are branded goods more expensive than generic ones?</li>
<li>why are the photographs from theme park rides so expensive?</li>
<li>etc.</li>
</ul>

<hr>

<p>Edit: A comment by AndrejaKo reminds me to add that the other very common reason why firms might increase their price is that they have higher costs. However, economics theory predicts that only unit costs (i.e. those that increase when you sell more units) matter for optimal pricing. Thus, for example, the fact that land near a highway is expensive would not seem like a very convincing explanation for high fuel prices (because the land costs the same regardless of how many units of fuel are supplied). But if, for some reason, supplying each litre of fuel was more expensive at highway fuel stations (because, for example, transporting the fuel there is more expensive) then we would indeed have an explanation for higher highway fuel prices.</p>

CC BY-SA 3.0
2016-07-06T22:55:06.307Z
In addition, in at least some countries places where fuel station on motorway may be located are limited and companies must pay to rent them. Poland is an example (google <miejsce obsługi podróżnych polska przetarg>). It reduces competition and increases fixed costs, both likely to result in higher prices.
reducing activity
CC BY-SA 3.0
2016-07-08T13:03:10.273Z
In France, petrol stations along a motorway have obligations that normal stations don't have. The simplest one is that they must be open 24/7. Also the price of the concession is quite high. I'm not sure if that completely explains a 10-20% price increase since in the case of petrol this means a *much higher* increase on profit. I am sure the convenience premium is a very important factor. People take the motorway to save time and feel safe, not to save fuel or money.
phs
CC BY-SA 3.0
2016-07-06T17:42:23.037Z
2016-07-06T19:08:17.267Z
2016-07-06T19:08:17.267Z
Ubiquitous
<p>In Europe it's usual, that fuel prices are 10-20% higher on the highway, than in the city. This is not only my personal observation, but also mentioned on travel sites (eg <a href="http://www.dutchtravels.net/travel/cheaper-car-fuel.htm">here</a> and <a href="http://about-france.com/driving.htm">here</a>). I don't have much expertise in economics, but as I understand this should not be possible in a competitive market, since what would stop a petrol station to lower their prices to the same level as the ones in the city, and get all the customers?</p>

<p>One solution could be, that they are different companies, but even the big ones like Shell and OMV have higher prices on the highway.</p>

<p>My question is: what is the reason for this situation, and what stops petrol stations from lowering their prices?</p>

CC BY-SA 3.0
2016-07-06T16:55:08.690Z
Well, if I understand your question correctly, it seems like they are relying on the fact that drivers on the highway will not want to stray into a city to get  fuel, so they will be willing to pay more to stay close to the highway. This is a situation in which location creates differentiation in products. Two economic models that explore this idea are linear city models and circular city models
DornerA
CC BY-SA 3.0
2016-07-06T18:59:50.773Z
This is not specific to Europe, I couldn't say a specific percentage like 10-20% but fuel stations right off the highway are always more expensive.  Ubiquitous has the reasoning.
Cand3r
CC BY-SA 3.0
2016-07-06T20:52:09.283Z
Not just Europe.  I was just off the main highway here last weekend and I saw prices 10-25% higher as I got farther from the main road and closer to tourist locations.
Loren Pechtel
CC BY-SA 3.0
2016-07-07T06:30:57.890Z
Definitely misunderstood the title to be about fuel consumption, not fuel prices. I think my brains must be addled. =)
Mathieu K.
CC BY-SA 3.0
2016-07-07T15:33:59.400Z
I've observed the same thing all over the United States. It's not particular to Europe.
Michael Hampton
CC BY-SA 3.0
2016-07-08T07:52:23.813Z
In the netherlands the fuelstation lots are owned by the goverment, and leased by bidding war every x years to gas stations. For some gas stations the prices are way up there. https://www.rijksoverheid.nl/actueel/nieuws/2014/09/10/verhuurd-zeven-tankstations-langs-rijkswegen
Tschallacka
CC BY-SA 3.0
2016-07-08T15:11:50.937Z
Because the companies that own and operate these stations are **a bunch of chiseling b*stards who'll gouge every penny they possibly can out of their captive audience customers**.
Richard
CC BY-SA 3.0
2016-07-08T15:54:09.517Z
@Richard I know gas station owners along the highways who make at best a penny a gallon on their gas. They make their real money when you buy a pop and snacks inside the station, which is why their pay at the pump is conveniently broken so much.
corsiKa
CC BY-SA 3.0
2016-07-08T16:02:40.447Z
@corsiKa - In the UK, motorway fuel providers have huge markups on their fuel pump prices, with little or no justification for it.
Richard
<microeconomics><nonexpert>
Why is fuel more expensive on the high way in Europe?
Torin42
# Why is fuel more expensive on the high way in Europe?

(Asked by: username_0 on 2016-07-06)

In Europe it's usual, that fuel prices are 10-20% higher on the highway, than in the city. This is not only my personal observation, but also mentioned on travel sites (eg [here](http://www.dutchtravels.net/travel/cheaper-car-fuel.htm) and [here](http://about-france.com/driving.htm)). I don't have much expertise in economics, but as I understand this should not be possible in a competitive market, since what would stop a petrol station to lower their prices to the same level as the ones in the city, and get all the customers?

One solution could be, that they are different companies, but even the big ones like Shell and OMV have higher prices on the highway.

My question is: what is the reason for this situation, and what stops petrol stations from lowering their prices?

**Tags:** microeconomics, nonexpert

> **Comments:**
> **username_1**: Well, if I understand your question correctly, it seems like they are relying on the fact that drivers on the highway will not want to stray into a city to get  fuel, so they will be willing to pay more to stay close to the highway. This is a situation in which location creates differentiation in products. Two economic models that explore this idea are linear city models and circular city models  
> **username_2**: This is not specific to Europe, I couldn't say a specific percentage like 10-20% but fuel stations right off the highway are always more expensive.  username_18 has the reasoning.  
> **username_3**: Not just Europe.  I was just off the main highway here last weekend and I saw prices 10-25% higher as I got farther from the main road and closer to tourist locations.  
> **username_4**: Definitely misunderstood the title to be about fuel consumption, not fuel prices. I think my brains must be addled. =)  
> **username_5**: I've observed the same thing all over the United States. It's not particular to Europe.  
> **username_6**: In the netherlands the fuelstation lots are owned by the goverment, and leased by bidding war every x years to gas stations. For some gas stations the prices are way up there. https://www.rijksoverheid.nl/actueel/nieuws/2014/09/10/verhuurd-zeven-tankstations-langs-rijkswegen  
> **username_7**: Because the companies that own and operate these stations are **a bunch of chiseling b*stards who'll gouge every penny they possibly can out of their captive audience customers**.  
> **username_8**: @username_7 I know gas station owners along the highways who make at best a penny a gallon on their gas. They make their real money when you buy a pop and snacks inside the station, which is why their pay at the pump is conveniently broken so much.  
> **username_7**: @username_8 - In the UK, motorway fuel providers have huge markups on their fuel pump prices, with little or no justification for it.  

---

## 5 answers

### Answer by username_18 on 2016-07-06. Score: 31 | Accepted answer

Because there is no indication in your question that you are a student or practitioner of economics, I am writing an answer for a lay audience. Let me know if you would like more technical detail.

---

A fairly general prediction from economic models of competition between firms is that the price that maximises their profit is higher the less sensitive is demand to that price (this sensitivity is measured by the "[price-elasticity of demand](https://en.wikipedia.org/wiki/Price_elasticity_of_demand)"). Intuitively:

* if demand is very sensitive to price then a cut in price will cause demand to increase a lot. The firm receives less for each unit it sells, but sells very many more units and is better-off overall.
* if demand is not sensitive to price then the firm can increase price without causing its sales to fall very much and will therefore wish to do so.

There are lots of things that affect the sensitivity of demand. One example, as username_1 mentioned in a comment, is geographic location. If the nearest competing seller is very far away or inconveniently located then buyers will be reluctant to shop elsewhere, meaning their demand is likely to be less sensitive to price increases at locations that are geographically isolated in some way. This seems like a reasonable way to think of highway fuel stations.

---

A little thought should convince you that the same principle (that prices are higher when demand is less sensitive) holds for other cases where demand is price-insensitive too. For example:

* why is food so expensive on trains/airplanes?
* why are branded goods more expensive than generic ones?
* why are the photographs from theme park rides so expensive?
* etc.

---

Edit: A comment by username_17 reminds me to add that the other very common reason why firms might increase their price is that they have higher costs. However, economics theory predicts that only unit costs (i.e. those that increase when you sell more units) matter for optimal pricing. Thus, for example, the fact that land near a highway is expensive would not seem like a very convincing explanation for high fuel prices (because the land costs the same regardless of how many units of fuel are supplied). But if, for some reason, supplying each litre of fuel was more expensive at highway fuel stations (because, for example, transporting the fuel there is more expensive) then we would indeed have an explanation for higher highway fuel prices.

> **Comments:**
> **username_19**: In addition, in at least some countries places where fuel station on motorway may be located are limited and companies must pay to rent them. Poland is an example (google <miejsce obsługi podróżnych polska przetarg>). It reduces competition and increases fixed costs, both likely to result in higher prices.  
> **username_20**: In France, petrol stations along a motorway have obligations that normal stations don't have. The simplest one is that they must be open 24/7. Also the price of the concession is quite high. I'm not sure if that completely explains a 10-20% price increase since in the case of petrol this means a *much higher* increase on profit. I am sure the convenience premium is a very important factor. People take the motorway to save time and feel safe, not to save fuel or money.  

---

### Answer by username_14 on 2016-07-07. Score: 13

There are two separate groups of customers for fuel: private individuals and commercial businesses.

The drivers of most vehicles used for business are not paying for the fuel themselves, so they are more influenced by the convenience of using fuel stations that are easy to find and are on the routes that they are already driving - i.e. on main roads.

In the UK, fuel prices are often higher on motorways than on other main roads, because commercial drivers using a motorway for high speed journeys are not going to waste time by leaving the motorway to buy fuel and then returning to it.

On the other hand private individuals are more likely to search out cheap fuel, especially if they can buy it easily while making some other car journey.

That explains why in the UK, the large supermarket chains sell relatively cheap fuel compared with "main road" prices. Most private motorists regularly visit supermarkets by car to shop, and while they are there it is convenient to buy fuel as well. The supermarket needs a large area of land for the store itself and for car parking, and the extra space needed for a fuel station is small. They can offset the reduced profit margin from their cheaper fuel price by the increase in sales volume, and encourage customer loyalty by including fuel sales on their store loyalty cards and similar promotional offers.

Incidentally, *non-commercial* professional drivers sometimes *do* search out cheap fuel. At my local supermarket, it's quite common to see a police car, and sometimes even an ambulance, filling up at the pumps.


---

### Answer by username_9 on 2016-07-07. Score: 6

Many economists like to assume perfect information but that is not reality.

A long distance traveler is unlikely to have information on which petrol stations are cheapest in the area. They will have a vague idea that petrol stations off the highway are likely to be cheaper but they also know that leaving the highway and driving around town looking for cheap fuel will burn time and fuel.

Therefore the petrol stations that serve travelers can get away with charging a premium over the "going rate" (those on main roads and especially motorways).

Of course there is a limit, the traveler will probably have some idea what the going rate for fuel is and a threshold over which they will say "screw that"

A local in most areas has much better information, they will probably have a familiarity with most of the local petrol stations and will usually have a choice of several alternatives. So to keep their customers petrol stations that serve locals generally have to sell the petrol at barely above cost.

> **Comments:**
> **username_10**: "Many economists like to assume" perfect competition. If it is profitable to sell fuel by the highway, more gas-stations will open...  
> **username_11**: @username_10: ...if the expected profits, appropriately discounted, exceed the cost of entry. Which is rather large (gas stations cost money to build) and mostly non-recoverable (nobody wants to buy an old unprofitable gas station), making the market far from perfectly competitive. The limited information and inelastic demand don't really help either.  
> **username_12**: In some cases, there are signs showing the current price of fuel in the next 2-3 petrol stations along the road, apparently in an effort to foster competition. But the price is still high(er) in these places, as far as I can tell, which makes me doubt whether incomplete information or username_18' points fully explain the price discrepancy.  

---

### Answer by username_13 on 2016-07-06. Score: 6

Convenience premium.

The market prices in a premium for convenience. This explains why hot dogs cost more inside the ballpark than at the convenience store outside the ballpark. And why convenience store goods cost more than those sold at the supermarket.

Put another way: Part of the cost of an item is not just the cost of materials and labor to get it there, but there is also a cost of *availability*. In other words, when you don't purchase the gas on the highway, the cost of it being available there is still present. Which you pay when you buy.

Note: This answer agrees with the price elasticity explanation given by @username_18 but avoids the ***price elasticity*** concept in favor of the perhaps more lay concept of ***convenience premium***.


---

### Answer by username_15 on 2016-07-06. Score: 3

Two possible reasons:

1. There is higher demand on the highway.

People on the highway are willing to pay more to stay on the highway (leaving to find another gas station will take time, they might not be familiar with the area, or other reasons). Since they're willing to pay more, the gas stations charge more.

2. Lowering prices might not increase profit.

Lowering the price might increase the quantity of gas or petrol sold, but it might not increase the quantity enough relative to the decrease in price. For example, dropping the price by 10% might only increase the amount of gas sold by 5%. Your overall revenue would decrease.

> **Comments:**
> **username_16**: The first point is absolutely valid but there is no explanation why the second point would apply on the highway and not elsewhere.  
> **username_15**: The second point is valid everywhere.  
> **username_17**: @denesp This  might be country-specific, but in some areas, businesses near highways can have extra taxes, land can be of higher value, there could be greater expenses transporting workers to workplace at highway etc.  
> **username_16**: @username_17 And that sounds fine and reasonable. I am just pointing out that username_15 2. point does not explain why there would be a difference in prices.  
> **username_17**: @denesp I do agree with that point.  
> **username_4**: The second point makes sense if we rephrase the question (without changing the meaning, I'd say) to "Why don't they sell fuel on the highway for the same prices they sell it for elsewhere?"  

---

