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.