Wednesday, January 05, 2005

Will Wisconsin's Minimum Markup Law Finally Go Away?

by Tom Bozzo

The Capital Times suggests that the Wisconsin legislature will take another crack at it. The Depression-era "Unfair Sales Act" has managed to survive a number of attempts to repeal it, most recently a couple years ago.

The Unfair Sales Act, as the Cap Times notes, currently mandates a minimum markup of 9.18 percent for gasoline sales. Thus, despite the act's name, it renders locally illegal some sales that neither economics nor federal law would consider unfair. In a report commissioned by former Democratic state representative Shirley Krug, the FTC noted that 9.18 percent was one of the "steepest minimum markups on retail fuel sales in the country" and concluded that the law likely "deter[red] pro-competitive price cutting."

An additional detail that makes the Unfair Sales Act especially undesirable, if you happen to be paying for gasoline in Wisconsin, is a detail omitted by the Cap Times: the "cost" to which the 9.18 percent is applied. (The FTC release uses the scare quotes, too.) It's not a retailer's actual (marginal) cost, but rather a terminal price that is probably above almost anyone's actual cost, magnifying the harm to consumers somewhat.(1)

I should note that opposition to the Unfair Sales Act is not a purely partisan matter, amazingly enough for these times. Dave Zien, the sponsor of the latest effort — for a one-year suspension of the law — is a Republican state senator from the Chippewa Falls-Eau Claire area.

Of course, the pro-Unfair Sales Act coalition, comprising

a group called Main Street Merchants for Fair Competition. Among its members are the Wisconsin Federation of Cooperatives, the Farm Bureau Federation, Wisconsin Farmers Union, the Tavern League, Wisconsin Grocers Association, Wisconsin Auto and Truck Dealers, the National Federation of Independent Businesses, and the Petroleum Marketers Association of Wisconsin Association of Convenience Stores.

(where it should be noted that the players at the end of the list are the ones who drop the vast bulk of the lobbying dollars to preserve the Act) are railing against "[t]he big money corporations that don't like Wisconsin's Unfair Sales Act just won't give up on trying to kill this important [to us]law." (This is apparently excerpted from a press release.) In the old days of the blog, I suggested (at the bottom of this post) that this sort of language should induce one to check one's wallet.

At a basic level, I find the gas stations' and convenience stores' claims of imminent threat from Wal-Mart — which belongs to the opposing "Wisconsin Coalition for Lower Gas Prices, among whose members are Wal-Mart, Murphy Oil, AAA of Wisconsin, UPS, several trucking companies and several veterans' organizations" — to be far-fetched. It's hard to imagine people going out of their way to Wal-Mart for gas when there are already relatively low-priced gas stations that don't seem to put higher-priced neighbors out of business.(2)

For instance, there are four gas stations along my short drive to work, and noplace for a big box retailer that wouldn't ignite controversy that would make the effort to build Monona Terrace look like throwing up a McMansion on the far far west side. Moreover, a pair of brand-name stations somehow manage to survive despite setting a price for premium gas 5% higher than the station I use a couple blocks to the east (the gap for regular is less, possibly due to the law, but still usually a couple cents).


(1) While there may be reasons to increase the relative price of gas to encourage conservation, enriching petroleum marketers isn't an especially desirable way to do so.

(2) An apparent lesson of the early Christmas retail season was that Wal-Mart doesn't have a ton of pricing power, what with big-box competitors already approaching its prices and trying to emulate various elements of its business model for better or worse. The thing is, if a Wal-Mart were to try to price gas below its cost on a sustained basis, it's probable that Wal-Mart would mainly hurt itself.
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