It is common knowledge that gas stations which get most of their business from long distance highway travelers have somewhat higher gas prices than those which do not. The reason for this is that it is costly for travelers to compare prices between gas stations, even close ones, because travelers may not know where other gas stations are, and they are often in a hurry. This creates a sort of pseudo-monopoly rent for the stations, because stations cannot compete with each other on price. If stations competed on price, their monopoly rents would largely disappear.

Occasionally a gas station has a location so that it can show its prices to highway travelers, but this is not often the case, and it is difficult for travelers to make the decision to exit in time because those gas stations are often very near the off ramp. Highways often have government owned signs which advertise the presence of gas stations on upcoming exits. Gas stations usually display their prices very prominently, often on a sign much taller than the actual station, so why don’t these signs ever display the price of gas for each of the stations? I see two possibilities:

  1. There is some technical barrier to displaying or updating prices on the signs.
  2. The government that sells the sign space to gas stations has an effective monopoly on sign space and therefore gets the monopoly rents from the stations.

I think the first possibility is unlikely, because I can’t think of any plausible technical barriers. I think the second possibility is much more likely. If it is state governments or the federal government who own the right to sell sign space, they have an effective monopoly on it. However, if it is more local governments, such as cities, who own the spaces, then they don’t have a monopoly, and allowing stations to display their prices should increase the business that the stations do and therefore increasing taxes and the value of sign space. If local governments owned the right to sell highway sign space, I would expect signs to display gas prices. Because highway side gas price signs are not common, I suspect either state governments or the federal government own the right to sell sign space.

I think I was hasty in posting this. The monopoly rents that a sign space monopoly gets are independent of whether the signs display prices or not. A monopolizer would simply have high prices for sign space, and that would raise the cost of having a gas station near the highway, which would raise prices.

Thinking about it more, I think the government is not acting like a monopoly, but gas stations do enjoy pseudo-monopoly rents.

John M offers a convincing explanation for why the government restricts price signs: “Billboards were once an infamous eyesore which have largely been reduced and eliminated through (I’m pretty sure) regulation. Basically the government has to restrict signage because if it didn’t, you wouldn’t be able to see the passage at all because billboard use would be nearly maximized.”

Though it seems like allowing a small increase in sign space for gas prices would not be very obstructive, and the resulting price reduction would be popular.