Each Saturday evening I put gas in our cars, usually just the minivan since my car doesn’t given driven as much. For as long as I can remember gas prices have included a 9/10s of a penny in the price per gallon. This always stood out to me because you don’t normally see prices listed with fractions of a penny. It is so uncommon that I think most people completely ignore it.
The reason they do this is clear, they make more money. While I don’t think you can charge a credit card a fraction of a penny, most people don’t buy just one gallon of gas. To keep things simple lets say I bought 10 gallons of gas for the minivan last week. Without the fraction of a penny the price would just be $3.24 * 10 = $32.40. With the fraction of a penny it is $3.249 * 10 = $32.49. They made an extra $0.09 from my purchase. Go on to multiply that by the number of other people who made similar transactions at the same gas station that day.
I don’t think we are talking huge numbers here by themselves, but the cost to generate that additional revenue is super small. The computers in the pumps just need to be able to calculate the price correctly, which the have to do any way. Even if a gas station is only making an extra $500 per day by adding on an extra 9/10s of a penny, the cost for that extra $500 is nearly zero.
This type of pricing pattern really only does well for per unit pricing where people nearly always buy more than one unit at a time. If everyone only purchased one gallon of gas at a time then the fraction of a penny really wouldn’t make a difference.
The other place I’ve seen fraction of a penny pricing is Amazon Web Services. Here is the EC2 pricing for light utilization reserved instances:
The EC2 pricing differs from the gas pricing in a couple of ways. First, not all of the EC2 fractions of a penny are 9/10s. Second the per unit pricing (one hour) of EC2 is so small that the fractions of a penny make up a significan portion of the price. That probably also explains why they aren’t all 9/10s of a penny.
Amazon isn’t the only cloud service for which this applies. Look at the pricing of Google Compute Engine as another example.
Since these last two examples involve computers and fractions of a penny, I’ll let Richard Pryor take care of the rest:
What other products or services do you purchase that consistently set their prices at a fraction of a penny?
7 replies on “Fractions of a Penny”
The 9/10ths of a penny on gas prices is a remnant of the great depression, I thought. When gas cost 19-20 cents a gallon, that psychological 19 vs 20 made a difference.
Interesting, I hadn’t heard that before. I could totally see that being the case, like the current EC2 pricing, at such low prices per gallon those fractions of a penny would be a decent percentage of the unit price.
There was a similar plot in the movie Office Space.
It also made me think of how Australia has gotten rid of the penny altogether and whenever we would pump petrol at the station, you would always make sure that it ended in 2 cents or 7 cents so it would round down to the nearest 5 cents. If it went to 3 or 8, it rounded up. This worked because we always paid cash, but I wonder if it applied when using a card.
Now I’m wondering if the interest on my bank account when I was there did the same thing. :-/
Yeah, not having pennies in AUS was nice. I liked the $1 and $2 coins too.
If you’re comparing 9 tenths to 0. Yes they made 9 cents more.
But you’re supposed to be comparing 3.249 to 3.25, NOT 3.24.
So 3.249*10= 32.49
Vs 3.250*10=32.50
Not really understanding this argument; you’re paying for 10 gallons of gas which is $32.49, which can be charged for correctly. So you’re paying the exact dollar price per gallon that’s advertised. If you managed to buy 10 individual gallons separately, you might have an argument, but in that case, as Correction points out you’re only being shorted by a tenth of a penny.
Totally incorrect and kinda naieve. Thought it was pretty common knowledge the 9/10 was purely for the psychological effect of seeing a lower number for the price. Also, You pay what you pay. Skimming a fraction of a sale is called theft. Most cards can be charged fractions. Since the practice of 9/10 is quite a bit older than credit cards.