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Minimum competition: Wisconsin’s minimum markup law costs consumers big

By   /   February 5, 2016  /   News  /   No Comments

MADISON, Wis. — Gov. Scott Walker signed 21 bills into law Thursday, including one allowing deer hunters to wear fluorescent pink vests.

Meanwhile, with apologies to the blaze pink lobby, a bill that would significantly lower prices for consumers by getting rid of Wisconsin’s 77-year-old minimum markup law languishes in the Legislature.

“Here we are with what is really an exceedingly important issue and topic and we can’t even get a hearing,” said Mike Nichols, president of the Wisconsin Policy Research Institute.

“We feel like people at least have a right to the information. Consumers are the ones who bear the brunt of it and they are just not represented in Madison. They don’t have lobbyists,” Nichols told Wisconsin Watchdog Thursday on the Vicki McKenna Show, on NewsTalk 1310 WIBA in Madison.

Photo by the MacIver Institute

MAXIMUM IMPACT: A sign last month outside the Capitol showing off the lobbying muscle of one of many groups trying to keep the status quo on Wisconsin’s minimum markup law.

WPRI this week released a new study, “Putting the Squeeze on Consumers: Real-World Impacts of Wisconsin’s Minimum Markup Law.”

The data-rich report lays out the numbers on the costs of the regulatory relic that mandates general merchandise cannot be sold below cost, and alcohol, tobacco and gas have to be marked up.

Gas, for example, must be priced at 9.8 percent above the “average posted terminal price.” That’s why Wisconsin will never see 46 cents-a-gallon gasoline as Michigan consumers did last month — part of a competitive price war in a state unburdened by a minimum markup law.

Nichols and other free-market advocates argue the law was never a good idea, but times were desperate in 1939, in the heart of the Great Depression, when a national association of grocers pushed a template minimum markup law. Wisconsin joined several other states to sign on.

The times have changed. Wisconsin is one of just 16 states that still have such laws.

“We haven’t caught up,” Nichols said.

The fear among supporters of minimum markup laws is that smaller stores will be victims of predatory pricing. But the Federal Trade Commission has long reported such practices are not a wide-ranging problem.

“Can prices ever be ‘too low?’ The short answer is yes, but not very often,” the agency states in an online Q&A.

RELATED: Healy: ‘How dare they give me a deal on a Butterball’

Instances of large firms using low prices to drive smaller competitors out of the market are rare because even the largest companies cannot sustain below-cost pricing for long.

“Although the FTC examines claims of predatory pricing carefully, courts, including the Supreme Court, have been skeptical of such claims,” the agency reports. “A firm’s independent decision to reduce prices to a level below its own costs does not necessarily injure competition, and, in fact, may simply reflect particularly vigorous competition”

Defenders of the status quo insist the law keeps pricing fair and protects small businesses. Reform measures are being fought tooth and nail by a coalition called “Main Street Businesses for Fair Competition.” The partnership includes Kwik Trip, the Pharmacy Society of Wisconsin, Tavern League of Wisconsin, Wisconsin Restaurant Association and more.

Status quo aptly describes the coalition’s position.

“You have to understand, because these laws have been in place since 1939, every business plan and pricing strategy has been predicated on this law. This is what retailers have used to determine how to price their products,” Brandon Scholz, president and CEO of the Wisconsin Grocers Association, told the Capital Times in November. “If you eliminated this law, you would have price wars in this state … in which some retailers would lower their prices way below their costs in an effort to knock out their competition.”

What you would have, Nichols and other reform supporters assert, is a level playing field that would fuel competition, curtail collusion and ultimately benefit consumers.

Many Wisconsin business owners want to see an end to the archaic law — people like Krist Atanasoff, featured in WPRI’s report.

Atanasoff told the institute he wants to lower his gas prices and save Wisconsin drivers money at the pump, but legislators in Madison who refuse to repeal the Depression-era statute won’t let him. He said dealing with the regulations costs him about $100,000 a year.

“I run a very, very efficient business,” said Atanasoff, who operates 33 independent convenience-store gas stations in northcentral and northeastern Wisconsin. “I’ve got our costs down because I own my own trucks — 31 of them, going 24/7. I also own my own ground and my own gas stations. … I can probably buy gas 8 to 10 cents per gallon cheaper than my competitors, but the law prevents me from selling it cheaper than my competitors do.”

“Is that really the American way?” he asked.

Perhaps not, but supporters of the status quo certainly have engaged in the American political way, dumping tens of thousands of dollars into the campaigns of the lawmakers who support or at least hold their noses and hold off reform of the minimum markup law.

Last month, on the day Walker delivered his state of the state speech, the grocers association had its “Grocers in the Capitol Day,” with a “Special Legislative Reception.”

“I’m guessing that the reception was not on the Capitol tour for visiting school children learning how democracy is supposed to work,” wrote James Widgerson for the MacIver Institute.

The Senate committee chaired by Sen. Rick Gudex, R-Fond du Lac, refuses to hold a hearing on the bill as the clock ticks away on a shortened winter legislative floor session. Gudex, in fact, refuses to answer why. Asked as much, his spokesman told Wisconsin Watchdog that Gudex would not comment.

“Do what you have to do,” the aide said when told that Wisconsin Watchdog would report that Gudex declined to answer when he would hold a hearing on the bill.

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M.D. Kittle is national First Amendment reporter at Watchdog.org. Contact him at [email protected]