My husband and I often remember prices differently: I think it was $5; he thinks it was $4. Turns out it was $4.99. The difference is how we view the cost — I automatically round up in my mind: $0.89 becomes $0.90, $1.46 becomes $1.50, $1288 becomes $1300. He tends to block out anything after a decimal point. Apparently, most people are like he is. Psychologically, they see $9.99 as “under $10,” even if tax puts the total cost over $10.
That’s why gas stations tack 9/10 cent onto the price of every gallon sold here in the U.S. Chances are, you are so used to seeing this fraction at the end of the ever-rising gas prices that you hardly notice it anymore. But the gas companies don’t forget about these not-quite pennies. Wisegeek calculates that those extra fractions bring in $1.7 billion annually, an average of $4.50 from each customer. (I bet those gas company executives believe in the value of a penny!)
Some people attribute motives more devious than simple profit to the creators of the 9/10 cent pricing. This site points out that rounding 9/10 cent to the nearest penny statistically favors the seller and that fractional pricing creates a false sense of accuracy related to the amount of gasoline pumped. The same site points out that you cannot purchase a single gallon of gasoline at its advertised price – a suggestion that gas stations are engaging in false advertising. At least one gas buyer feels cheated by these practices. He says the gas stations are stealing from us by failing to make change for the whole penny we give them. Seeing how those fractions add up, he may be right, but does anyone want to sue a gas company for $4.50 a year?
Back when gas cost less — say, 30 cents a gallon — the 9/10 cent may have made a noticeable difference to consumers (3% of the total bill). Now it accounts for such a small portion of the sale (about 0.3%) that changing the price of a gallon from 9/10 cent to 7/10 cent would not make a significant difference in the total gas bill. (I can’t imagine anyone making a u-turn to go to a gas station across the street that charges 2/10 cent less, though I have seen such a move made for a penny per gallon difference.)
On the other hand, such a price change might have a psychological effect on the customer. Buyers may believe that a change in the fraction correlates to a change in the wholesale price the gas station pays — if you charge me $3.106 instead of $3.109, it’s because your costs changed by that much. It sounds silly, but the same person who complained about gas stations stealing partial pennies hinted at this idea by saying of Canada, whose penny fractions change, “Sounds like they have a real price thing there.” I wonder if Canadian gas stations are also more likely to give change for 4/10 cent.
Image courtesy of silverxraven