The hidden impact of data on gas prices

Matthew Lewis, professor of economics at Clemson’s Wilbur O. and Ann Powers College of Business, has spent much of his career investigating industrial organizations with a focus on energy markets and healthcare markets, including gasoline markets, gas prices, consumer search and consumer response to price fluctuation.

One line of research examines how much consumers actively research gas prices before deciding where to refuel. Using extensive data on visits to a popular gas price aggregation website, Lewis and his coauthors analyzed patterns in consumer behavior. The findings revealed that consumers are far more likely to compare gas prices when prices are going up than when they are going down.

Lewis explains, “When gas prices rise, people encounter unexpectedly high prices and start paying closer attention to find the station with the lowest price. However, when prices drop, consumers tend to think they are getting a good deal and are less likely to shop around. As a result, stations can often get away with charging higher profit margins when prices are falling because consumers become less price sensitive.”

More recently, Lewis has turned his attention to the impact of readily accessible data on gas station pricing strategies. Before tracking rivals’ gas prices in real-time online, station owners had to rely on old-fashioned methods to keep an eye on the competition. “Stations may be less likely to try attracting customers with price reductions when they know other stations can quickly observe and match the lower price.”

Over the last decade, there has been a significant increase in available information and data. Data collection, for everyone, has become easier with the internet and smartphones. With apps and websites providing access to competitors’ prices, gas station owners can adjust their pricing strategies without having to drive around and collect data physically. However, Lewis’ research suggests that this newfound transparency doesn’t necessarily benefit consumers in the way one might expect.

“My research suggests that gas prices tend to increase rather than decrease when gas station owners have access to their competitor’s pricing. Stations may be less likely to try attracting customers with price reductions when they know other stations can quickly observe and match the lower price.”

In the future, Lewis plans to continue exploring how technology and data are reshaping markets. “In general, this is a very important topic because firms are gaining access to more information, and some firms are better than others at gathering and processing information,” says Lewis. “It’s exciting to think about how competition in different product markets may be impacted by this changing information landscape.”

To learn more about Powers College of Business research, visit our research webpage.