Thursday, September 07, 2006

Why Isn't Oregon More Like New Jersey?

Over at Econball, Tony V. is perplexed by the fact that Oregon is not an extreme outlier with respect to its fraction of gas stations with convenience stores given its self-service laws. As he points out, Oregon’s 53% of gas stations with convenience stores in the 2002 Economic Census ranks behind New Jersey (25%) and Massachusetts (47%) and only a little above Connecticut (58%) and New York (60%). He hypothesizes that geography is responsible:

My gut is still that the reason Oregon doesn't look like NJ, but rather looks like northeastern states that allow self-service gas stations is that Oregon's geography would tend to give it a *very high* fraction of gas stations with convenience stores, but its full-service law brings it down to look like Northeastern states whose geography leads to fewer gas station-convenience store hybrids. Oregon's neighbors (Washington, Idaho, Nevada, and California) all have high percentages of gas stations with convenience stores (82.1%, 80.4%, 85.1%, and 69.9%). So Oregon is more than 26% points lower than the average of its neighbors, which is similar to the difference between New Jersey and the other northeastern states on in the table above.
I think this is basically correct. Driving long distances is pretty much what you do in Oregon (and the rest of the West), and driving long distances increases demand for convenience store gas station combinations regardless of whether or not you pump your own gas.

However, I think Tony V. misses another part of the explanation – turnpikes. A large fraction of people traveling long distances (to the extent that is possible) in New Jersey, Massachusetts, and New York rely on toll roads. People traveling on toll roads tend to be confined to the weird (to me) rest area things for their fuel, food, and plumbing needs. You don’t typically get off a toll road and pull into a town just to get a coke, burger, or gas.

This is not the case in Oregon. If you want gas or food while driving along an interstate in Oregon you pretty much have to pull off into a town. This increases supply of gas station convenience store combos because the market is not regulated/monopolized by the turnpike authorities, and it increases demand because people can get off whenever they feel like at an area with a wide variety of choices (at lower costs?) rather than having to drive to the next official rest area with the 1 or 2 officially sanctioned suppliers. In the West, every town along the interstate has a cluster of gas stations and fast food restaurants at the interstate exits. (In fact, most of the gas stations and fast food restaurants in such communities are within a few blocks of the exits.) As such, I was never surprised that Oregon had more gas station/convenience stores than New Jersey.

I am a little perplexed, though, by the rapid growth in the fraction of gas stations with convenience stores in Oregon in the relatively short period between 1997 and 2002. While Maryland and Hawaii increased their fraction of gas stations with convenience stores by as much or more, the percent of gas stations with convenience stores in Oregon jumped from 30% to 53% in only 5 years. That is a pretty rapid change. Although, given that – with the exception of New Jersey – the 10 states with the lowest fraction of gas stations with convenience stores in 1997 all experienced increases of 14 percentage points or more, perhaps I shouldn’t be that perplexed.

Update -- My brother points out that DEQ regulations forced gas stations to remove/replace undergrand storage tanks by the sometime in 1999. This may explain why there was a surge in the fraction of gas stations with convenience stores among states that had relatively few of these in 1997. The tank replacement was accompanied by old stations closing or undergoing major renovations.

Two unrelated gas station points:

1) I discovered recently that here in Cambridge 4 gas stations along Broadway and 2 out near Fresh Pond offer mini-serve at the same price as self-serve (I assume they will let you pump your own gas I only witnessed people having their gas pumped for them). I meant to go back and ask if the pumpers got tips or anything, but I’ve been too lazy. All 6 of these stations do not have convenience stores and only one of them is a “brand name” chain (a Citgo station).

2) In Toronto, gas station marquees are digital and the prices change all the time. My friend who lives there says that during the course of the day the price can swing by 10%, and he believes that there is even a daily price cycle (e.g., gas tends to be cheaper in the evening). I’d never heard of such a thing. Is this common elsewhere?

Just to point out: even though the storefront rights in rest stations along highways are exclusive and granted via gvt license, all these roads also have gas stations, fast food restaurants, etc. right off the exits as well. Additionally, the highways do have blue signs before the exit telling you which fast food stations, gas stations, hotels, etc. are there.

Obviously, the exclusivity and reduced cost of using a "rest area" give those establishments an edge and likely reduce the supply of "off-road" establishments somewhat, but, for example, there's no shortage of Wendy's, Burger Kings, KFCs, etc. off of the Massachusetts Turnpike, even though McDonald's has exclusive rights to the rest areas.
Certainly. These are still high traffic areas, so these types of establishments still want to locate there. I am only saying that we should expect toll roads to reduce their numbers.

Toll roads raise the cost of finding these places (because they are frequently well out of sight and accessing them is more challenging because of the various toll plazas, etc.) and significantly lower the price of the alternative (the extremely easy to access rest areas). I am sure there are people who loathe the choices available to them at the rest areas, are interested in taking a longer break, and/or looking to escape the crowds who gladly pay the higher price to get off the toll road, so demand is not driven to zero. (Although I would guess that most of these people are primarily motivated by restrauant preferences (which then creates some spillover demand for gas/convenince items). Most people simply interested in fuel/convenience items I expect to stick to the rest areas.)

However, in the end, demand is sufficently reduced that there has got to be fewer gas station, convenience store combos clustered around the exits to toll roads.
Oh, agreed. It'd be interesting to see by how much. I also agree that the effect of gas stations is probably stronger than that on restaurants.

And I'm sure we could think of some other reasons Oregon is not more like New Jersey....
Yeah, I think there are maybe a few other differences between Oregon and New Jersey. Although, after the whole "Oregon is the ___ of ____" discussion, I am afraid to see what you might come up with.
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