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Premium Gasoline Overbuying in the U.S.: Consumer-Based Choice Analysis

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  • Setiawan, Winardi
  • Sperling, Daniel

Abstract

High octane gasolines, including “premium” and midgrade, steadily gained market share in the United States during the 1980s, increasing from 12% of the total gasoline market in 1983 to 15% in 1985 and 30% in 1989. This 18% increase in market share represents an aggregate revenue transfer from U.S. consumers to industry of an additional $3 billion per year. It is widely believed that many drivers do not gain any benefit from using premium gasoline. We review the substantial technical evidence underlying this presumption, and then analyze a survey of vehicle owners in New York and California to determine why people purchase premium gasoline, given that many of them receive no clear benefit. We found that demand for premium gasoline is highly elastic, women and drivers in certain regions are more inclined to purchase premium gasoline, income plays a minor role, and the benefits are poorly understood. Many people buy premium gasoline for rather vague reasons, not on the basis of strong evidence or justification.

Suggested Citation

  • Setiawan, Winardi & Sperling, Daniel, 2001. "Premium Gasoline Overbuying in the U.S.: Consumer-Based Choice Analysis," University of California Transportation Center, Working Papers qt9dd2t48q, University of California Transportation Center.
    • Handle: RePEc:cdl:uctcwp:qt9dd2t48q
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    1. W. Michael Hanemann, 1984. "Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(3), pages 332-341.
    2. David L. Greene, 1990. "Fuel Choice For Multi‐Fuel Vehicles," Contemporary Economic Policy, Western Economic Association International, vol. 8(4), pages 118-137, October.
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