Laws in several states require gasoline retailers to set gasoline prices at minimum levels, thus artificially inflating the price at the pump.
In Maryland, Minnesota, New York, Wisconsin, and several other states, minimum gas price laws require gasoline retailers to set a minimum price for gasoline based on the current average wholesale price. In each case, lobbyist groups for service station organizations pushed the laws through.
But why does this happen? Surely no constituent would actually ask their state legislator to raise gas prices.
Lobbyists such as WMDA Service Station & Automotive Repair Association, the Gasoline Retailers Association and the Petroleum Marketers Association of America are able to sell legislators on the fairy tale that if high-marketing gasoline outlets such as Wawa, Sheetz, Wal-Mart and others are allowed to charge prices that are too low, they’ll drive all other gasoline stations out of business. Having done so, these high-marketing outlets could charge any price they pleased and make huge profits.
In economics, we call this strategy predatory pricing. It’s an argument that has a ring of plausibility, but there’s little evidence anywhere anytime that a predatory pricing scheme produced results even remotely close to what would-be predators envisioned. Questioning this fairy tale and asking for evidence would never cross the mind of a legislator. — WorldNetDaily
That’s right, a bunch of service station owners, afraid of Wal-Mart moving in and offering lower prices, got laws passed against lower prices and real competition. They used the specter of “predatory pricing,” the act of pricing below wholesale cost to drive out competitiors, to get the laws pushed through. Far from creating a level playing field for competition, however, minimum gas pricing favors one group over another.
Even the Federal Trade Commission agrees. In a 2003 staff memo, the FTC said that minimum gas pricing hurts consumers, that predatory pricing is almost never seen in reality, and that minimum prices are unnecessary due to federal antitrust laws.
The independent service station owners, who have quite well organized themselves already, should be able to easily negotiate better wholesale prices based on the strength of their numbers. However, they would rather have prices artificially inflated, so as to pocket more money at everyone’s expense.
Gas prices have risen so high that online betting parlors are offering bets on how high they will go. It’s time to end minimum gas prices, truly level the competitive playing field, and provide Americans some much-needed relief, however small, from rising gas prices.
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N. Mallory
Aug 19, 2005
I wonder what will happen when the minimum gas price is higher than the minimum wage.
Jason
Aug 20, 2005
@N. Mallory:
Hopefully people will wake up and smell the ethanol by that time…
Mark J
Aug 20, 2005
How is this a “spectre?” Wal-Mart has already built gas stations at their stores in Florida, and was selling gas at a loss until a judge ruled that they were breaking the law. They then teamed up with an oil company in 2000 and were campaigning to get Florida’s predatory pricing law off the books so that they could continue to sell get at a loss. Selling gas at a loss is something Wal-Mart can afford to do, because they’ll likely be able to fund it with profits from the rest of their store. Mom ‘n pop gas stations cannot afford to do this.
California has no minimum price law, and they have the highest gas prices in the nation. Why? Lack of competition (specifically, lack of independent stations). Six companies control 90% of the gas market in California.
Once you price your competition out of the market, subsidizing your loss with other profits, you can charge any price you want. Plus, once you get gas stations all controlled by big companies with exclusive deals with oil companies, oil companies can start leveraging their vertical integration to restrict gasoline supply and further inflate prices.
This isn’t a level playing field.
Now, minimum markup laws are another thing… like in Wisconsin, but in Florida, you are merely not allowed to sell for less than the wholesale price that you offer. If one gas company has a lower wholesale price, stations selling their gas are free to charge that price.
If you’re worried about gas prices, you only have to compare prices in Florida with those in California to know what happens when you reduce competition.
Tristan
Aug 23, 2005
Well… I have little sympathy. I live in Nova Scotia, Canada, and the government does nothing here. Consequently gas vendors are charging an average of $1.10 a litre for gasoline. One gallon is nearly four litres. See how bad that sucks? You drive around for a day and you are out $100. That is ridiculous and something must be done.
Aug 25, 2005
The news just keeps breaking - IO ERROR
Dennis Potter
Sep 14, 2005
9-14-05 Just read in the paper that the bill to repeal the mim. gas price law never made it out of committee. I fail to see why the state feels the voters should pay .30 a gal. to pump their own gas. If we are going to have protection for the industry on mim. markup then we should have protection for the consumer with a max. markup law of say 10 cents a gal.
May 04, 2006
What’s wrong with high gas prices? - Homeland Security or Homeland Stupidity
Ernesto Ramos
May 09, 2007
This, like the mandatory “emissions” testing” and toll road building/selling to foreign countries is TREADING WITH HEAVY BOOTS on Americans’ freedom. I wondered why there were no more gas wars…prices went up together with little or no going down.
Monkey Business in state governments! We thought we saw the last of “Monkey Business” when Gary Hart got caught philandering on a yaght? After that, a candidate HAD to be INVOLVED IN fooling around…JUST TO GET NOMINATED.
Now this GAS Gouging SCANDAL! And that is JUST what it is. GRRRRRRRRR!
vc
Jul 01, 2007
Mark J,
You are a genius!!!!!!
Just because the predatory pricing to monopoly pricing scheme has NEVER been documented ANYWHERE at ANYTIME in HISTORY, that doesn’t mean it doesn’t exist. It must exist since you are so smart and you say it exists.
Nice job picking out one (CA) out of the 76% of states that do NOT have this inane law. Compare to the outlying point on the curve- excellent work. Since I don’t know, I would ask someone else to comment on the PROFITS of the gas stations in CA. Are they percentage-wise larger than elsewhere? I doubt it.
Your amazing intellect has got me thinking. What we need to do is pass a law that every single good or service must be sold at a substantial profit. In fact, the higher we make the mandatory profit, the greater the competition!!! You are a master economist. I vote to unseat Walter Williams and replace him with you. Nevermind, perhaps a cabinet level position- Economy Czar with an endowed Mark J chair of unsubstantiated backwards logic.
Mark, try reading at least a paragraph of any economics literature before inflicting your idiocy on us.
Have a nice day
VC is brilliant!
Oct 07, 2010
Wow VC, took you almost 2 years to come up with your response! Thanks for enlightening everybody with your brilliance. You throw out a million allegations and accusations while Mark J stepped it up with numbers and actual statistics. You truly do know how to knock out an argument!
Let me guess VC, you are absolutely against Mom and Pops having a chance at making any money, yet you are one of the broke ass people living off everyone elses hard work. VC, get a job and stop collecting unemployment while writing….strike that….scribbling childish remarks.
Thank goodness people like you have no power or control over anything significant.