Savannah Smith and Art Carden
At a marina in the Florida Keys, Rec-90 boat fuel was $5.16 a gallon in December. At a gas station just up the road from the marina it was $4.20 a gallon. Why does boat fuel cost about a dollar more per gallon at the marina than at a nearby gas station? Boat fuel at the gas station and marina is chemically indistinguishable. Shouldn’t the same fuel have the same price everywhere? Are consumers deceived? At first, it might seem like it. However, seen in the light of economic thinking, there is a more benign explanation.
One of nine Economy Essentials said every choice has a cost. If you find yourself in the water and want gas, you need to weigh the costs and benefits of getting gas at the marina versus getting it at the gas station. If you choose to refuel at the marina, it will cost you an extra dollar per gallon, but you’ll be in and out in less than fifteen minutes. A sailor will even pump the gas for you.
However, if you go to the gas station down the street, you might save a dollar a gallon of gas, but you’ll spend two hours getting your boat out of the water, hauling it to the gas station, bring it back, then put it back in the water. For example, consider a completely empty 200 gallon tank. It would cost $1,032 to fill up at the marina but only $840 at the gas station. You could save $192 by driving to the gas station at the end of the street, but at the cost of two hours. It’s time for you to be not spend fishing, scuba diving or enjoying the water, plus the frustration of moving a boat.
One of the Economic mistakes claims that profit is exploitation. Someone may feel like they’re being ripped off when they give a deckhand a credit card knowing they’ll pay $1,032 for “the same” fuel they’d get for $840 on the street. However, they are not exploited: the marina does not just provide fuel. They offer service and convenience. Marinas “get away with it” charging people an extra dollar per gallon because people are willing to pay for the extra service and convenience.
Marinas therefore do not make a profit by “exploiting” boaters. In this example, they earn an extra $192 by providing boaters with a service and convenience they are willing to pay for. This $192 is a reward for finding a way to cooperate with boaters in a way they find beneficial.
Of course, every boater would prefer to pay less for fuel, just as every buyer would prefer to pay less for groceries, and every renter would prefer to pay less for an apartment. Marinas, however, are willing to sell fuel at a slight markup, as it helps them and their customers off the hook. Marinas are rewarded with an additional $192. Boaters benefit from a quick and easy trip to refuel, giving them much more time to enjoy the open ocean and all that the beautiful Florida Keys have to offer.
Savannah Smith is a student and Art Carden is a professor of economics at Samford University.