Low Gasoline Prices are Illegal in 13 States

[Tigermike 3,717]

Low Gasoline Prices are Illegal in 13 States 

Daily Policy Digest

Economic Issues / Price Controls

Wednesday 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.

LINK

Minimum gasoline prices

Walter E. Williams

March 31, 2004

A couple of weeks ago, heading down to George Mason University, I pulled into my favorite Wawa gasoline station just off the Bel Air, Md., exit on I-95 South. At each of the 20 gasoline pumps, there was a sign posted that Wawa would no longer dispense free coffee to its gasoline customers. Why? The station was warned that dispensing free coffee put it in violation of Maryland’s gasoline minimum-price law.

Here’s my no-brainer question to you: Do you suppose that Maryland enacted its gasoline minimum-price law because irate customers complained to the state legislature that gasoline prices were too low? Even if you had just 1 ounce of brains, you’d correctly answer no. Then, the next question is just whose interest is served by, and just who lobbied for, Maryland’s gasoline minimum-price law? If you answered that it was probably Maryland’s independent gas-station owners, go to the head of the class.

Let’s first establish a general economic principle. Whenever one sees statutory or quasi-statutory minimum prices, he is looking at a seller collusion against customers in general as well as against particular sellers, those who are seen as charging too low a price. This economic principle applies whether you’re talking about minimum wages, minimum dairy prices or minimum real-estate sales commissions. Members of a seller collusion call for statutory and quasi-statutory minimum prices so they can charge customers higher prices than they could otherwise in the absence of a statutory minimum.

You say, "Williams, that’s preposterous; how can they sell legislators on the idea? After all, buyers of gasoline are more numerous than sellers of gasoline." To answer that question, you have to recognize a couple of other facts. First, legislators aren’t known for being rocket scientists. Secondly, legislators love campaign contributions, and satisfying the interests of lobbyists is more important to their political careers than serving the interests of consumers in general.

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.

Another reason legislators can get away with establishing these minimum-price laws has to do with another economic phenomenon called "narrow well-defined benefits and small widely dispersed costs." The beneficiaries of the gasoline seller collusion are relatively few in number and well organized. The victims, mainly gasoline customers, are difficult to organize, and the costs they bear are relatively small and widespread.

In other words, how many gasoline consumers would be willing to spend their time and energy fighting to unseat a legislator whose actions imposed, say, a nickel a gallon additional cost upon them? It’s cheaper just to pay the nickel a gallon more and forget about it, but that’s not true about gasoline retailers. It is worth their time and energy to pressure legislators for minimum-price laws, and politicians know this.

Maryland is not the only state with statutory minimum gasoline prices. It’s joined by 12 other states, including New York, Michigan and Wisconsin. Wisconsin legislators have the gall to call its government-sponsored seller collusion the "Unfair Sales Act."

LINK

[DKW 86 7,899]

When Al Gore was telling everyone that high gas prices were needed to drive folks out of the those gas guzzling SUVs, I didnt notice anyone in the Dem Party crying about it. He just wanted to raise the gas tax though, about .50 a gallon and then charge owners of fullsize pickups and SUVs around $1300.00 a year in licensing fees. It would have killed the fullsize truck and SUV market and killed off some very good profits for automakers and the UAW job situation would be far more bleak too.

[Ranger12 53]

When Al Gore was telling everyone that high gas prices were needed to drive folks out of the those gas guzzling SUVs, I didnt notice anyone in the Dem Party crying about it. He just wanted to raise the gas tax though, about .50 a gallon and then charge owners of fullsize pickups and SUVs around $1300.00 a year in licensing fees. It would have killed the fullsize truck and SUV market and killed off some very good profits for automakers and the UAW job situation would be far more bleak too.

Bingo! That seems to never come up for some reason.

[autigeremt 7,205]

The TRUTH kills all of those arguments that the DEMS create. What a farse!