NCPA - National Center for Policy Analysis


July 6, 2005

"Below-cost laws" often forbid retailers from selling gasoline below cost or force companies to mark up their prices. Many were passed back in the 1930s, relics of a bygone era when governments feared gas behemoths would use predatory pricing to gain a monopoly and drive out competitors. The Wall Street Journal says we now know that threat was never very likely.

To get an idea of what below-cost laws do to drivers, the Journal gives the following example:

  • The Wisconsin Unfair Sales Act requires gas wholesalers to mark up their product at least three percent and retailers to mark up their product at least six percent, which means from the start, drivers pay more than nine percent more than necessary.
  • The state's Coalition for Lower Gas Prices estimates the law adds between 1.3 cents and 1.8 cents to every gallon of gas and costs consumers in Milwaukee County alone about $5.5 million annually.

Over the years, economic research, legal studies and court cases have all found that below-cost pricing rarely leads to a monopoly, and monopolies are especially unlikely in the competitive market for motor fuels.

These laws make trips to the gas station more painful than necessary and as gas prices go up, this blatant protectionism will be even more inexcusable, according to the Journal.

Some 13 states currently have below-cost laws and the recent growth of retail giants like Wal-Mart and Costco has inspired a backlash from mom-and-pop retailers and convenience stores. They chose below-cost laws as their preferred political tool for kneecapping this new competition, says the Journal.

Source: Kimberley A. Strassel, "Another Reason to Love Wal-Mart," Wall Street Journal, June 29, 2005.

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