Suppose there are two identical gas stations facing identical
demand curves in two small towns. One of them filled up its storage
tanks a week ago at a price of $1.00 per gallon. Then unexpected
world events led to a dramatic increase in fuel prices, so that when
the second station filled its storage tanks four days go, the price
was $1.80 per gallon. In three weeks both will be refilling their
tanks, but right now the cost to them would be $1.40 per gallon.
If both have the goal of maximizing profit, and both are rational, will they sell gasoline to their customers at the same price or will the second station that paid more charge a higher price? Explain.
Copyright Robert Schenk