Low Gasoline Prices are Illegal in 13 States
March 31, 2004
Consumers are upset at high gasoline prices, but economist Walter Williams points out that 13 states have statutory minimum gasoline prices. In those states -- which include Maryland, New York, Michigan and Wisconsin -- high-volume discount gas sellers cannot charge lower prices than their competitors.
Such laws are passed due to the collusion of retailers who benefit from the constraint of competition, says Williams. Statutory and regulatory minimum prices allow sellers to charge customers higher prices than they could otherwise. Such minimum price controls are imposed on milk, real-estate sales commissions and other products.
But why would legislators pass laws to financially benefit a few sellers at the expense of buyers, who include most voters? Williams suggests three reasons:
- Campaign contributions to legislators from those supporting minimum prices.
- The beneficiaries of the gasoline seller collusion are relatively few in number and well organized; whereas the victims, mainly gasoline customers, are difficult to organize, and the costs they bear are relatively small and widespread.
- Lobbyists for the retailers are able to convince state legislators that if discounters are allowed to charge prices that are too low, they'll drive all other gasoline stations out of business, and then will charge any price they pleased and make huge profits.
This strategy is called predatory pricing, but there is little evidence anywhere anytime that it works.
Source: Walter E. Williams (George Mason University), "Minimum Gasoline Prices," March 31, 2004, Townhall.com.
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