Guest commentary in the July 29 Tomahawk Leader:
While politicians scramble to offer motorists gas price relief this summer, government may actually be contributing to consumers’ pain at the pump, according to a new study by the Wisconsin Policy Research Institute (WPRI).
In “Wisconsin’s Minimum Markup Law: Government Mandated Pain at the Pump,” author Christian Schneider demonstrates how the law mandating a 9.18 percent markup on gas in Wisconsin has contributed to skyrocketing prices. Among Schneider’s findings:
•Wisconsin’s minimum markup law adds $990 million to the annual price for gas paid by consumers, between $267 and $278 million of which is beyond what a normal profit margin would yield.
•Wisconsin motorists currently pay 30.2 cents per gallon as a result of the minimum markup law meaning the cost of minimum markup has almost eclipsed the state’s 32.9-cent auto fuel tax (currently ninth highest in the nation).
•As the wholesale price of gas increases, so does the amount per gallon motorists have to pay as a result of minimum markup. In January of 1998, when the wholesale price of gas was 64 cents per gallon, the minimum markup stood at 5.9 cents per gallon. In July of 2008, the wholesale price of gas stands at $3.29 per gallon, with the per-gallon minimum markup amount at 30.2 cents – an increase of 400 percent in 10 years.
•In the past year, the amount the minimum markup law adds to a gallon of gas has increased 44 percent – from 21 cents per gallon in July of 2007 to 30.2 cents per gallon in June of 2008.
The report updates a WPRI study conducted in 1999 that concluded the minimum markup adds 2 percent to the price of gas in Wisconsin over markets that do not have such a law. In 2008, with gas prices skyrocketing and consumption increasing, the law is taking much more out of Wisconsin motorists’ pockets than in 1999, when the initial study was conducted.
The minimum markup law (more formally referred to as the Unfair Sales Act) was passed in 1939, to protect depression-era businesses from unfair competition. Initially, the law included most goods and services sold in Wisconsin, including groceries. But in 1986, the Legislature acted to remove groceries from the law, as some argued it artificially boosted the cost of food to consumers.
“The fact that groceries were removed from the law without detriment to small grocers shows that repealing the law on gas won’t damage business to ‘mom and pop’ gas stations,” said Schneider. The law is intended to prevent large businesses from undercutting the prices of smaller gas stations, then raising prices on consumers when the small stations are run out of business.
However, as the study argues, federal laws already prevent anti-competitive “loss leader” sales. Furthermore, the idea that a large business can put smaller gas stations out of business and keep them there (which would be necessary for them to consequently raise prices) is far-fetched. The report cites several sources that demonstrate the lack of evidence that predatory pricing will occur.
The report calls for an immediate repeal of the minimum markup law on gas, as has been attempted in a bipartisan fashion for decades.
“We should not have a law that protects consumers from paying less at the pump,” said Schneider.
The full report is available at http://www.wpri.org.