Different kinds of business relationships exist among fuel suppliers and retailers.
Many large stations, particularly in urban areas, are controlled directly by the major oil companies. Agents, who receive the gasoline on consignment and sell it at a price set by the oil company for a commission, operate these stations.
Dealers tend to operate smaller stations. These retailers buy their gasoline from the oil company at a price related to the rack (wholesale) price. Normally, a dealer offering a major brand pays a price higher than the rack price because the gasoline contains the company’s proprietary additive package and its price includes delivery and some overhead expenses, such as corporate advertising.
A large number of independent gasoline retailers also buy gasoline at the terminal. They usually receive small discounts off the rack price depending on how much they buy. These companies supply their service stations which, like the major branded ones, may be operated by agents or dealers. They also sell to independent stations. In small markets they may distribute to a major brand's dealers.
Agents charge a price set by the owner of the station. Dealers set their own prices. All prices are influenced by market conditions. Competition can keep retailers' prices similar. If one retailer sets its price too high, it may lose business to a lower-priced competitor. Set low, a retailer's price may be matched by its competitors. Generally, motorists benefit from such competition, and intense competition can lead to the difference being small between a retailer's cost and its selling price of gasoline.
Large vs. small retail markets
Major brand name retailers tend to be dominant in urban markets. Prices at these agency outlets are generally set based on given margin over the rack price. In smaller markets, prices tend to reflect the level of local competition between individual outlets.
Gasoline as a 'loss leader'
Few retailers sell just gasoline. Most offer other goods and services, usually sold at margins higher than for gasoline. The revenues from the sale of these goods and services may make the difference between profit and loss for a retailer. Some retailers may even discount gasoline to attract motorists, in hopes of selling them higher margin items.
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