Minimum markup on gasoline targeted

Law may need modification, but not repeal…

by Jack E. Lohman

It is again raising its head. In 1939 our state legislature passed a law that prohibits the selling of gasoline without first adding 9% in profit (3% at the wholesale level and 6% at the retail level).

The purpose of the law was to prevent large retailers from selling at 0% profit until they drove the smaller retailers out of business, and then upping their prices in a captive market.

So now there’s an effort to repeal this law. Let the market decide the price, say some business advocates like Brian Fraley, a Republican consultant who has not denied being hired and paid by the major resellers.

“This adds a whopping 36 cents a gallon to the cost of $4.00 a gallon gasoline” Fraley says, and certainly that’s the correct math. But repealing the law does not mean that the 36 cents will be eliminated and returned to the consumer.  It could make zero difference, which the evidence below supports.

Surely if the Wal-marts and Targets of the world decided to forego their 24 cents of profit to get people into their stores, we could potentially save the public up to 24 cents per gallon. But it hasn’t happened in the states without minimum markups, and it likely won’t here. These guys don’t discard profits flippantly, especially their highest profits.

Two things bother me in this whole discussion. First that the Fraleys of the world are using “apple pie” arguments, like “this is a free market issue,” when in fact it is fueled by the moneyed interests. That he accepts their cash to carry their water is certainly his choice, though I’d prefer some honest disclosure on his part.

Second, this “free market” effort is proposed by the very same politicians who voted 100% against the free market when they yielded to the moneyed interests involved in wine distribution in Wisconsin. Seems the free market matters here but not there, don’cha know. It’s a double standard bought and paid for by campaign cash, and our esteemed politicians are right in the middle of it.

The cash flow in our political system is disturbing — on all bills, not just this one. If this bill was repealed without money coming from the Wal-marts of the world, we could accept it as politicians doing their job. But is isn’t and they aren’t. This state legislature makes its decisions in the best interest of their campaign funders, not their constituents.

That’s why we must have a 95% turnover in November. Wisconsin Democracy Campaign called it right when they ranked our legislators on political reform. Nine — get this, only NINE — state politicians have consistently had the public’s best interest in mind. The rest have to go.

Neither extreme is satisfactory. Neither total regulation nor total free market. Neither total socialism nor total freedom to put your wealth above all others. I prefer a regulated free market, but I don’t like the cash from special interests that interferes with political loyalties. I don’t like politicians that sell their sole for a buck, not even to the interests I support.

So I’d feel a lot better if I knew that the politicians were not taking campaign money and would sit down and honestly reach a solution in the best interest of the public. Even if I don’t support the decision, I’d know it was reached without selling out to the highest bidder.

This law should be modified to remove the 3% profit requirement by wholesalers but retain the 6% profit requirement by retailers. Let’s see what happens and revisit the issue in a year.

But remember, the difference in gas prices is more affected by state taxes than by the presence or absence of a minimum markup law. Compare these gallon prices MINUS state taxes:

IA  $3.68
IL  $3.66
MN $3.65
WI $3.63

So even with the minimum markup law, Wisconsin’s base prices are lower than in adjoining states.

Again, state taxes are a function of our moneyed political system. The road builders are generous contributors, but do they need all of the extra work our politicians dish out to them?

And why is it that the very conservatives that hate high taxes, support the moneyed political system that fuels them?

10 Responses to Minimum markup on gasoline targeted

  1. Publius says:

    “The purpose of the law was to prevent large retailers from selling at 0% profit until they drove the smaller retailers out of business, and then upping their prices in a captive market.”

    Wrong.

    Do I have to follow you around the entire Intertubes explaining why you are wrong? What is it about this law don’t you understand? You continue to conflate antitrust laws with this one. This is not an antitrust statute.

  2. >>> “This is not an antitrust statute.”

    I didn’t say it was. Ever!!! Not here, not even on the other blog.

    Selling below cost may violate antitrust laws, except in certain close-out situations. But to my knowledge, antitrust laws do not require a minimum markup profit… they only prohibit a negative profit for purposes of controlling the market. Selling at no markup or small markup is not illegal.

    This whole issue turns on whether we want to further allow the Wal-marts of the world to control our communities. That they are hiring consultants and lobbyists to get laws passed or repealed is troublesome. That they or anyone would buy off politicians is even worse. That the politicians take their money is unconscionable.

  3. Also, Plubius, either you or someone else brought up the point that the flat 6% profit means a regular increase in gas station profits as OPEC greed keeps pushing gas prices up. And that’s a legitimate gripe. If your side of the issue were not so hung up on “repeal and nothing but repeal,” perhaps some graduated profit spread could be fairly negotiated.

  4. Publius says:

    Why should anyone be guaranteed a profit? The percentage is arbitrary and capricious and has no economic, rational basis. When gas prices go up, but yet a station owner’s costs do not, what sense does it make to grant them extra profit at the expense of the consumer? And why do we single out gasoline, alcohol, and tobacco as profit makers? Certainly hammers, nails, and computers deserve equal protection. How about a minimum markup on legal services?

    Moreover, when advocates speak of repeal, they mean the whole law; those provisions that prevent prescription drugs, computers, clothing, food, and furniture from being sold below cost.

    This law was originally meant to protect competitors, not competition. It encourages inefficiency and creates government sanctioned barriers to entry (monopolies).

  5. Your arguments are well stated, Publius, and logical on the surface. But two issues have to be considered beyond these.

    First, you are comparing primary industries (gas) with secondary products (hammers and nails). The price of the latter cannot make or break community businesses, whereas in the wrong hands the price of gas can.

    I cannot honestly tell you that once the floor is removed that the Wal-marts of the world will try to drive the price down to get more people in their stores, but the fact that they are funding policy change makes me wonder what their motives are. Removing the minimum markups has not disrupted the prices in other states, but this is a new day.

    My gut tells me that eventually you will win this, because the big stores have the money to spend on the politicians. That’s too bad in its own right, but that’s the way it is.

    But like the saying goes, be careful of what you ask for ’cause you just may get it. I don’t think our communities are ready for the kind of change this could bring.

  6. Again — there is no evidence this will reduce gas prices, so why would it be done? As a benefit for Wal-Mart?

    Or is it a dodge to keep our attention away from the real villains, Big Oil? Any strategy which fails to include disincentives for Big Oil’s gouging isn’t going to do a goddamned bit of good, or reduce gas prices at all.

  7. That’s a fair question, Scot. Why does Wal-mart want this so badly that they have apparently paid lobbyists to try to repeal the law? I don’t think it would help Big Oil, and could hurt them if we removed the 3 cents guaranteed profits.

    I worry most about what it could do to the community gas retailers that can’t deal with zero profit should it go that way. How many jobs would be lost just to put more profits into Wal-mart’s pockets?

  8. John says:

    This is an interesting comment: “Moreover, when advocates speak of repeal, they mean the whole law; those provisions that prevent prescription drugs, computers, clothing, food, and furniture from being sold below cost.”

    The U.S. Supreme Court recentling did away with a 90 plus law prohibiting price fixing. Now auto makers, software companies…etc. are preventing retailers from selling products below cost. This contradicts the free market ideals Publius wants to put in place when it only applies to government regulations. No such rule applies to the moneyed private interests that lobby our politicians, and now our conservative court systems.

    This whole issue is just another solution to a non-existant problem, like voter fraud. We cannot let these sneaking conservatives lead us away from the real problems we’re facing, with imagined ones.

    The simple answer to all of this is: have our gas prices been any different from those in other cities? No. So where’s the problem?

  9. Thanks John. The conservatives — no, let me rephrase this, because I consider myself at least fiscally conservative — the moneyed interests apparently can accept “floors” created by the private sector but not the public sector. They feel the “privates” should be able to do anything they want to do. “Free market,” don’cha know.

    Here’s an interesting comment from windhoek7on another blog on the subject:

    “If the markup law was repealed, I can see the big retailers temporarily slashing the price of gas, and consumers benefiting as a result. The big boys can afford to undercut the little guys for a substantial period of time. But as soon as the mom and pops are ran out of the market, the big gas retailers will soon again jack-up their prices, and the smaller communities will suffer the most as a result of the large conglomerates offering higher prices. This story is not new. It has happened over and over again including in my hometown of Barstow, California where Wal-Mart, with their cheap prices, undercut and ran most of the small retailers out of the city. Wally World then gradually raised their prices past the level of what the small retailers use to charge! I still have mixed feelings on the mark-up issue, but people are fools who say the government has no right to control prices of monopolistic industries.”
    Source: http://www.madison.com/wsj/topstories/297623

    I can’t say that I blame them for not trusting politicians, they are bought and paid for by the very corporations they do trust.

  10. John says:

    I’ve got a longer perspective on this at the following link.
    http://democurmudgeon.blogspot.com/2008/07/minimum-markup-law-another-imagined.html

    One more thing. The current down economy will be wiping out a lot of mom and pop businesses that can’t absorb the downturn in spending. That will leave the larger companies standing, concentrating the markets even further. I hope people realize that the Wal Marts of the world won’t always have low prices, or be forced to compete. We are already seeing low wage laborers demanding more money in India and China. Labor standards, product testing and consumerism will force our cheap products to increase in price in the U.S. forcing now stretched citizens to cut back on purchases.

    If our wages continue to plummet due to the global economy, and we no longer make anything in this country, were in for some real trouble. Be warned.

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