Don’t think too hard

What is the meaning of life? Why is yawning contagious? When it’s pitch black outside, is the grass still green? Why is gas priced $#.## 9/10 per gallon? We’re still meditating on the first three, but in response to lots of theories and a lack of official word on the Internet about fractional fuel pricing, SN&R sought out to clarify this common curiosity.

“The 9/10 cents on the end of every gallon of gas is part of the federal tax.”

Try again. Although taxes on gas include a federal tax of 18.4 cents per gallon, there is no mandate that says dealers must use fractional prices.

“It’s a marketing thing. Ninety-nine point nine looks better than a buck.”

Well, kind of. Long ago, the nine-tenths concept began as a competitive-pricing gimmick. When gas was, say, 30 cents per gallon, 29.9 cents might have seemed like a bigger bargain. Today, a tenth of a cent just isn’t worth as much, so fractional pricing may not be as effective on consumer psychology.

“This is a hangover from ancient marketing lore.”

Yep. That’s the way it’s been done, so that’s how it’s done today.

“Dispenser computers … [have] a bias for rounding up.”

Indeed they do. An amount of gas is measured out to three decimal places, but the price you pay goes out to two. This means there is rounding involved in calculating the total price. Dispensers round down to the nearest cent when the third-decimal-place digit is 1-4 and round up if it is 5-9 (if it’s 0, the price is already a whole cent).

Sources: American Petroleum Institute, California Department of Food and Agriculture Division of Measurement Standards, Energy Information Administration, www.energy.ca.gov/gasoline.