It's one of those mundane little daily mysteries: why are there fractions on gas station prices? It's the sort of thing you mean to look up, but then forget before you get home. But now, QZ has cracked the quotidian case, and the culprit is, as usual, greed.
It turns out it stems from early 20th century practices when sales taxes were first placed on gasoline sales to help fund highway construction and maintenance, and it's perpetuated to mislead modern consumers into spending more money without realizing it.
When gas prices were low, and a cent was worth a dime, adding a penny to the price was a big deal, so stations would charge fractions. But by the 1950s, there was a different motivation behind the practice. QZ sites a CNN report to explain.
Setting prices ending in 99 cents, known as "just-below pricing," is a common marketing tool used to make consumers feel like they're getting a deal, said Robert Schindler, a professor of marketing at the Rutgers School of Business-Camden who researches retail prices and how shoppers process numbers.
"To consumers, a price such as 19.9 cents feels substantially lower than the price of 20 cents," Schindler said.
And there are real profits in the pennies for gas station owners. That 9/10 of a cent adds up to around half a billion dollars annually. So, to save money at the pump, count your pennies, and brush up on your fourth grade fractions arithmetic.
Previously: Website charges 99 cents to see who paid 99 cents to see who paid 99 cents…
