They say you should never buy the second-cheapest bottle of wine on the menu. Since restaurant owners know that many penny pinchers are too proud to order the very cheapest bottle, they smartly jack up the margins on the second-cheapest, thus making it the worst value of the whole bunch.
We didn’t realise this, but there’s a similar phenomenon with gas. The midgrade fuel is priced to screw over drivers too proud to buy “regular”. GMU economist Robin Hanson explains:
When I bought my Miata the dealer told me to use premium gas, but my wife recently suggested I try regular. At which point I considered midgrade gas, and noticed: one is better off mixing regular and premium than buying midgrade! For regular, midgrade, premium, the $/gal. prices were 1.77, 1.92, 2.02 , while the octane ratings were 87, 89, 93. So the first jump gives you 2 octane points for $0.15, while the second jump gives you 4 octane points for only $0.10. Since mixing gas averages the octane ratings, if you mix 2/3 regular with 1/3 premium, you make your own midgrade gas for only 1.85, saving 0.07. I then went searching and found this Feb ’08 paper:
“Regular octane remains the product of choice for most consumers with an 82.2% market share in 2006. Midgrade is a mature product with a 2006 market share of 9.3%. Premium’s market share ranks last at 8.4% in 2006. … Midgrade is a redundant product offering, easily and almost costlessly replicated by mixing existing regular and premium products. Indeed, this redundancy is widely known and exploited by … just-in-time mixing at the retail pump from separate underground regular and premium storage tanks. … It is rare to see a consumer create a midgrade by buying from two retail feedstocks at a single retail gas station. This is true despite the overwhelming evidence that consumer midgrade mixing is almost uniformly the least costly way to buy retail midgrade…”
So there you go. Even with gas prices down, savings are savings, and in this economy you can’t afford to be throwing away on irrational refueling strategies.