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Sticky Gas Prices: Prices should be dropping like a red brick

Gas prices have dropped 20 cents on average in the last week,
but the average basket of wholesale prices that we track have
dropped by 54¢ a gallon. So why aren't retail prices keeping
track?

The only thing preventing a price free-fall below $4 in the next
week or two are "sticky prices." This is the "Up like a rocket, down
like a feather" syndrome that Bill Lockyer referred to when he was
investigating gas prices as the Attorney General of the State of
California.

In early October, wholesale prices screamed up by 75¢ a gallon in
a few days -- more than $1.25 for some unbranded dealers -- and many
dealers couldn't even buy gasoline because supply wasn't available.

But three factors are putting the brakes on lower prices:

 First, dealers must move the expensive gas in their tanks before they
can make room for the cheaper gas.

 Second the extreme volatility of the last three weeks has made many
dealers cautious about cost-cutting in the event prices scream up again.

Third, a lot depends on local competition: If dealers in a given town or
neighborhood all maintain high prices because a cost-cutter doesn't
emerge within their trade area, then prices will remain sticky.

Consumers can help the process by rewarding dealers selling cheaper
gas. It will pay to literally drive the extra mile, make a U-Turn, or
cross the street to save a few pennies.

Wait to buy gas. It will get cheaper ... a lot cheaper in the coming days.