AI Overview
Gas prices have a third decimal point (9/10 of a cent) due to a combination of historical pricing strategies and competitive marketing. This practice started after taxes were added to gasoline in the 1930s, and gas stations used fractions to avoid a full-cent increase that would have seemed too large to consumers. The practice continues today because the fractional pricing makes prices seem lower, even though the final amount is rounded to the nearest cent at the pump.
Historical context
Early gas taxes: When a federal and state taxes were placed on gasoline in the 1930s, they added a fraction of a cent to the price to avoid a full-cent increase, which would have been a significant jump for consumers at the time.
Price competition: The practice became standard, and gas stations began using 9/10 of a cent to make prices appear lower and to remain competitive.
Modern practice
Psychological pricing: A price like $3.599 is psychologically perceived by consumers as closer to $3.59, not $3.60, making it seem like a better deal.
Competitive edge: If one station were to stop using fractional pricing, its price would appear higher than competitors, which could deter customers.
= new reply since forum marked as read