What do you notice about these four sets of gas prices (click to enlarge)?

While I was filling up at the gas station today, I noticed it too. No matter what the price of gas is, the difference between Regular, Mid-Grade, and Premium always seems to be just about 10 cents. What’s up with that?

I did some quick research on the Web and could not find any information on this topic except for another blogger questioning the same phenomenon: Mercer On Value: Why are gas prices exactly 10 cents higher per grade? As Chris Mercer, the author of this post, points out, from a cost standpoint, the only difference between the various grades of fuel would be a little bit of octane booster - likely either toluene (paint thinner; used in Formula1 and other racing leagues) or ethanol or MTBE (I think they stopped using this as it was found to cause contamination of municipal water supplies). I’m sure the prices of these octane booster fluctuates quite frequently and moreover, I highly doubt that, at the volumes that oil companies produce, the cost of these octane boosters is anywhere even close to 10 cents per gallon.

I have to agree with Chris that the 10 cents pricing differential is simply the price elasticity of demand. Oil companies (and I guess to some extent the gas retailers) must have figured out over the decades that 10 cents is the magic number.

1) 10 cents is small enough to hook customers who voluntarily choose to purchase a higher grade of gas than their car’s requirement. (i.e. buying 89oct midgrade for a 87oct requirement car) Many consumers are willing to pay $1-$2 extra per tank to feel like they’re making their engine happier.

2) 10 cents is not large enough to persuade customers to downgrade to a lower octane even if their car requires premium fuel. (i.e. downgrade to 89oct instead of the 91oct required by their car). Because the engine performance difference between mid-grade and premium fuel is generally very slight, most consumers could downgrade and never notice the difference. The oil companies know this and this puts an upper bound for the price differential between fuel grades.

What grade fuel do you use and have you either switched or considered switching up or down?