Analysis of Gas Prices in Howard County, Maryland



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5.0 Conclusion


RESI reviewed gas price data for gas stations across eight jurisdictions between 2002 and 2012. Using a time-series analysis, RESI determined that across counties over time there was a statistical difference between Howard County and the other jurisdictions within the model. Montgomery County was the only jurisdiction to exhibit margins higher than stations located within Howard County. Other factors such as stations per capita and population were highly statistically significant variables concerning gas retailers’ margins.
RESI found the following factors to determine, within a 95 percent significance level, annual changes in gas price markups:

  • Percent of unbranded gasoline stations within a region;

  • Station density per capita;

  • Changes in rack (wholesale) prices;

  • Population changes; and

  • Current gasoline taxes.

A more detailed analysis using a one-year period, 2012, across gas stations was created to determine what regional factors may contribute to the statistical difference in retail margins. Variables for gas stations located in CUP and nonconforming zones were added into the model along with variables for percentage of the region in square miles that allowed for gas stations.


Results from the analysis could explain nearly 64 percent of the variation in the retailers’ margins, and land planning factors were highly statistically significant. Of the land planning variables that were statistically significant, RESI found that gas stations located within zones where gas stations are permitted conditionally (CUP/SE) had higher margins than gas stations in zones where gas stations are permitted outright, and an increase in the percentage of square miles designated as CUP/SE zoning or permitted zones would decrease retailer’s margins.
The inclusion of the permitting variables was to indicate the potential barriers to entry that gas stations may face when attempting to expand or open in a new jurisdiction. Permitted zones were viewed as having the fewest barriers to entry, CUP zones having the medium level, and nonconforming zones as having the most barriers to entry. Incorporated areas within the study area jurisdictions were excluded from the model and dropped from the analysis as they are regulated by their own zoning.
RESI concluded that the greater the restrictions, the higher the retailer’s margins would be for standard zoning. However, upon further research, Columbia, Maryland, was reviewed independently of Howard County since the development review process entailed the approval of a final development plan versus the traditional CUP review for standard zones. To account for this difference, RESI included a variable for Columbia, Maryland, into the analysis.
From this analysis, RESI concluded the following for gas retailers’ margins across the eight jurisdictions:

  • The greater the distance between competing retailers, the higher the retailers’ margins;

  • If the jurisdiction increases the percentage of land area permitting gas stations, then retailers’ margins would decrease; and

  • Retailers located within Columbia, Maryland, will have margins approximately $0.11 higher on average than retailers located within the other study areas.

Overall, RESI concludes the case of higher gas prices can be attributed to the mark up by retailers in a given jurisdiction. The higher the barriers to entry, the higher the markup associated with those retailers. Other factors such as density of competition and location to a major highway can be associated with competition to gain consumers, but these factors are also indirectly driven by zoning. Zoning factors could limit the potential for some unbranded stations to enter the market if the costs to entrance resulted in negative or minimal margins and if the locations available would not drive the consumer base needed to continue operation. RESI can conclude that zoning does play a major factor in gas prices in the short term, which may result in a continued trend over the long term if current zoning restrictions remain unchanged.




6.0 References


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