MoCo: Not as Rich as You Think, Part Three

Have you ever heard of zone pricing for gasoline? Under this practice, energy companies, wholesalers and service stations adjust gas prices for shipping costs and a large variety of geographic characteristics, one of which is rumored to be household income for the areas around the stations. This conforms to the basic realities that most of us have noticed in looking for gas. No one drives into wealthy neighborhoods to fill up – we go into relatively poorer areas instead.

And so we launched an empirical investigation: do Montgomery County residents pay more for gas than other Marylanders because their household incomes are greater?

To find out, we consulted Gas Buddy, a website that relies on volunteers to gather gas prices and report them by service station. During the week of 8/30/08-9/5/08, we tracked every price reported on Gas Buddy in Maryland. This database does not cover every service station, but the volunteers collected 2,947 individual price observations all over the state during that week. Below are the average regular gasoline price levels they reported by county:


Garrett County had the highest average price, but Gas Buddy’s volunteers only made 26 observations there over the week – less than four per day. Given the small sample size, it is doubtful that that accurately reflects gas prices there. Montgomery’s average price ($3.63) was easily the highest among the remaining counties and was significantly higher than the state average ($3.50).

Below are the average regular gasoline price levels for every local area with at least 30 observations, along with their average household incomes in 1999:


The four most expensive areas for gas were all in Montgomery County, as were six of the top ten. Was that because the Montgomery areas had higher incomes than other places around the state? Not necessarily. For example, Silver Spring’s average household income ($51,653) was slightly lower than in Catonsville ($53,061). Yet, gas prices were much higher in Silver Spring ($3.62) than in Catonsville ($3.43). Similar inconsistencies show that average household income and gas price do not track each other very well.

In fact, when we ran a simple regression of household income on gas price, our model found that income only explained 27% of the variation in price. In contrast, a simple regression relating location to price found that whether or not a station was located in Montgomery County explained 37% of the variation in price. In other words, for this rather large sample of price data, whether or not a station was located in Montgomery may actually be a more important determinant of its price than the average household income in the surrounding area. In wealthy local areas (like Bethesda) and in less-wealthy areas (like Silver Spring and Aspen Hill), gas in Montgomery costs more than in the rest of the state.

What is driving this? We don’t have enough data to know (so you statistical geeks out there should forget any multi-variate or logit models). One possible cause may be the higher price of real estate in Montgomery than in other counties. Higher land costs, higher mortgages and higher property taxes may be pushing up gas prices here.

But regardless of the reason, the evidence is clear: Montgomery County residents pay more for gas than other Marylanders. Metro offers no relief because it periodically raises fares and parking charges. And higher gas prices, like higher real estate prices, may very well ripple through and push up prices for goods and services throughout the county’s economy.

So if Montgomery County residents make more money only to pay higher prices for housing, gas and everything else, is their living standard really superior to most people in other counties? Except for the wealthiest residents of Montgomery’s richest neighborhoods, the answer may very well be no.

Tomorrow, we will conclude this discussion by taking a hard look at who exactly is paying these high costs of living.