Why petrol prices are higher on motorways

It is not just in Britain that motorway service areas are the preferred location for the oil companies. The economics are attractive in many countries despite the exceptionally high initial outlay. Here’s how it works.

Motorways are publicly owned and to help defray construction and operating costs the elements on offer on site are put out to tender. This includes such things as fast food and fuel (petrol/diesel). It is highly competitive and the right to have your brand on site will cost millions of pounds in upfront and annual costs.

The reason that despite the cost oil companies like motorway service areas is that there is no competition. This is supply/demand economics at its most raw. Price theory predicates that the price of a commodity like petrol is at the intersection of the supply and the demand curves.

In a normal town there will be a number of petrol stations competing on price. The supply is high which puts pressure on the price. It’s also open – prices are clearly displayed on the sign outside the station. Of course other factors play a part – the shop on the site will bring customers in and location is crucial. The busier the road the better. There can also be brand preference and loyalty schemes. But in the main demand is price determined and the customer exercises choice.

At a motorway service area there is no choice – they are virtually all single brand outlets. There is no price competition and there are no price controls. Companies have paid a lot to be there and they want to recover those costs so they put the pump price as high as they can. The customer is captive and takes it or leaves it. On a long journey it is likely that he or she will have to take it. The alternative is to leave the motorway and search for a station with lower prices – not many drivers do that.

British motorways are mostly free to use but the driver and passengers will pay in other ways. Your Costa Coffee will cost you more than on the high street, and so will your BP petrol. With today’s more fuel efficient vehicles a tank of petrol will take you a long way. You may be able to avoid expensive motorway petrol entirely and it makes sense to do so. But most of us will have to pay the motorway petrol cost surcharge sometimes I’m afraid !

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