Environmental Economics

Googling “gas station profit margin” brings up this tangled tale of the gasoline business’s recent evolution. Apparently it’s a combination of decreasing demand reducing convenience store traffic, plus percentage-based fees on credit card transactions eroding profits as gas prices go higher. Shutting down would let the station owners save labor costs in the short run.

My guess is that this is less about economics and more about how these small businesses finance themselves. Let me emphasize the guess part. This “story” is based on my hazy recollection of a case from business school many years ago. No ego here.
There are two important things happening to the station owner as the prices s/he faces rise.
They generally purchase gas, in bulk, at the market rate. As prices rise, they need to estimate what the price will be at the time they make their next bulk purchase. To them, their variable costs based on what the next bulk purchase will cost, not what the last one cost. If prices rise over the course of (say) a day, morning sales (at the lower price) do not cover their costs. The sales today, may not cover the costs they face in a week. As prices rise, the gas in their bulk tanks is worth more to them if they do not sell it, so they might choose to wait.
Also, credit card charges eat into margins as prices rise. Gas stations target a gross margin (future bulk purchase price-current sales price) of 10-15 cents per gallon (note this is not a percentage). Credit cards charge 2.5% of sales for each transaction. As prices rise, this charge eats into net margins.
The bottomline: from a station owner’s perspective, this is a classic shutdown scenario: VC < R. Now we can argue about how well station owners the academic definition of variable costs, or how well academics understand how small business actually operate.
My $.02
OK experts, fire away. I won’t wilt.