Savannah Smith and Art Carden
At a marina in the Florida Keys, Rec-90 boat fuel was $5.16 per gallon in December. At a gas station just up the road from the marina, it was $4.20 per 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 the marina are chemically indistinguishable. Shouldn’t the same fuel have the same price everywhere? Are consumers being cheated? At first, it might seem like it. However, when viewed in light of the economic way of thinking, there’s a more benign explanation.
One of the nine Economic Essentials says every choice has a cost. If you find yourself in the water and wanting gasoline, you have to weigh the costs and benefits of getting gas at the marina versus getting it at the gas station. If you choose to gas up at the marina, it will cost you a dollar more per gallon, but you will be in and out in less than fifteen minutes. A dockhand will even pump the gas for you.
If you go to the gas station down the road, however, you might save a dollar a gallon on gas, but you will spend two hours getting your boat out of the water, hauling it to the gas station, hauling it back, and then putting it back in the water. For example, consider a 200-gallon tank on dead empty. It would cost $1,032 to fill up at the marina but only $840 at the gas station. You could save $192 by going to the gas station down the street but at the cost of two hours. That’s time you’re not spending fishing, scuba diving, or enjoying the water, plus the frustration of moving a boat.
One of the Economic Errors claims that profit is exploitation. Someone might feel like they are getting ripped off when they hand a credit card to a dockhand knowing they’ll pay $1,032 for “the same” gas they would get for $840 down the street. However, they are not exploited: the marina is not just providing fuel. They’re providing service and convenience. Marinas “get away with” charging people an extra dollar per gallon because people are willing to pay for the additional service and convenience.
Marinas, therefore, are not earning profits by “exploiting” boaters. In this example, they make an additional $192 by providing boaters with service and convenience for which they are willing to pay. That $192 is a reward for finding a way to cooperate with boaters in a way they find advantageous.
Of course, every boater would rather pay less for fuel, just like every shopper would rather pay less for groceries, and every renter would rather pay less for an apartment. Marinas, however, stand ready to sell fuel at a slight markup because it makes them and their customers better off. Marinas get rewarded with an extra $192. Boaters get a quick, easy trip to fuel up, giving them that much more time to enjoy the open ocean and everything else the gorgeous Florida Keys offers.
Savannah Smith is a student, and Art Carden is an economics professor at Samford University.
READER COMMENTS
Dylan
Mar 25 2023 at 1:38pm
That’s great as far as it goes, but I think you’re missing part of the story. The other question is, why can the marina get away with the markup. Why is it not competed away until the price more closely matches that on land? And I think that has to do with limits to market entry that are stricter on water than they are on land. Some of those are natural, there’s only so many places you can put up a marina, and others are regulatory. I’m speculating, but I’m guessing it is a lot harder to get a permit for a gas station on the water than it is on land.
I grew up living on two large lakes both with a lot of boat traffic. One of those only had two places on the entire lake to fill up. The other one had a lot of marinas with fuel and a few standalone fuel docks. The price difference between land and water was a lot bigger in one of those than it was in the other.
Jon Murphy
Mar 25 2023 at 4:08pm
Well, the limits are stricter. That’s the story they’re telling. There are higher transaction costs (which can include entry) on water than on land.
It’s also probable that the demand curve is such that only a monopoly (or a handful) of water-based fuel could survive.
Jon Bass
Mar 26 2023 at 9:33am
Yes but the two aren’t actually identical. Marine gas is a different blend, typically ethanol free and with a higher octane rating. That said I do often mix some cheaper auto gas into my tank for the reasons you list above. Senior boaters read this and are horrified 🙂
Savannah Smith
Mar 27 2023 at 5:28pm
Yes Jon I am aware of the different blends of fuel. The gas station in the Florida keys provides Rec-90 (boat fuel or marine gas) at their pumps along with fuel for your cars.
Savannah Smith
Mar 27 2023 at 5:30pm
I am so sorry that that was not made clear in the essay. I wrote this essay because I am a boater myself 🙂
Daniel Carroll
Mar 26 2023 at 11:05am
Another explanation is the cost of providing gas on water is higher than land. Most of that will be real estate costs, but regulatory, logistics, and volume (such as not being year-round) impact it as well. In addition, most land gas stations have high margin convenience stores; sometimes the gas is a loss leader.
Gus Dozier
Mar 27 2023 at 10:56pm
I think that Jon M. and Dylan both have valid points that certainly can fit within Savannah and Art’s theory, however it seems to me that Savannah was more hitting on the fact that boating, in general, is a much more exclusive and high value commodity compared to driving a car. Nine out of ten times driving a car serves the purpose of just getting to point A or point B (usually to work or to run errands). A boat on the other hand is quite the opposite. Boats are almost always used for pleasure which in and of itself allows for a higher level of expense. It would therefore make sense that the items sustaining a pleasurable activity cost more. Also, @Jon Bass, as a senior boater myself I certainly see what you’re talking about however I believe you may have miss understood what Savannah was saying. I believe she was strictly comparing Rec-90 (Non-Ethanol) fuel at marinas to the chemically indistinguishable Rec-90 (Non-Ethanol) fuel that is also sold at many gas stations all across the country.
Johnson85
Mar 30 2023 at 3:55pm
I don’t think it follows that items sustaining a pleasurable activity cost more. It could just as easily be argued that the demand for pleasurable (or “optional”) activities would be relatively elastic and therefore the equilibrium price would be lower to get a much greater quantity demanded.
I think it’s much more likely about
costs to entry (waterfront commercial property is more expensive usually than even commercial property with easy waterfront access),
lack of volume (even in a really busy boating area with year round boating weather, you get a lot of fillups in the morning on the way out and in the evening on the way in, with much lower volume during the day and at night; probably not so different than regular gas stations but much more exaggerated);
higher labor costs (more workers required b/c you do need to help some boats);
higher liability (spilling gas into the water is a bigger deal than spilling onto a gas station parking lot with containment measures);
lack of ancillary revenue (e.g., you typically don’t get a ton of other sales along with gas; bait sales and emergency/last second gear sales, otherwise the higher cost of real estate means you pretty much can’t compete on price with big inland stores and that’s where boaters will get stuff when they have an opportunity to plan for it, unless they don’t care about price);
higher property insurance costs (for coastal areas, you’re pretty much by definition going to have facilities subject to flooding that an inland gas station might not);
And probably some other things I’m not thinking of. Just very different businesses.
Natalie Kunkel
Mar 31 2023 at 10:38am
An excellent essay concerning the basic premise of economics. “ I have it; you want it.” I took the time, energy, resources and risk to provide you with the OPTION to purchase my product. You CHOOSE to take the route of convenience and pay the extra dollar per gallon. This tells me that you value your time, family and the small businessman. This is the ultimate, simple truth of success in business and life.
Remember that certain huge businesses began as simple “deliver the goods quickly and accurately” to those who were willing to pay the extra delivery charge. Also remember that “value is in the mind of the purchaser.” If you cannot afford the extra dollar, PLAN to fill up your tank on the way to the lake, but remember your kids will buy expensive junk food and sodas while you spend half an hour pumping gas, etc.
Both Savannah and Art will have success in their careers because they have the gift of common sense (a rare commodity in 2023) and the ability to see the bare bones truth, cutting through the convoluted fluff added by those who attempt to set the scene rather than improve the economy.
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