May 23, 2017 – West Bend, WI – West Bend has been enjoying something of a retail renaissance in the past few years. Unfortunately, Wisconsin’s Unfair Sales Act, A.K.A. “Minimum Markup Law,” is preventing consumers to reap the benefits of such an upsurge in competition.
Just in the last year, Kwik Trip opened in West Bend, the Shell on Paradise upgraded with a car wash and Mad Max built a shining new gas station on South Main Street. Pizza Ranch is planning a new store on Washington, Morrie’s Auto Group is planning a new Honda dealership in town and Russ Darrow is already building a new Nissan dealership. The big news last week was the opening of a huge Meijer grocery store and Pick ‘n Save is planning a major upgrade to its stores.
The natural result of so much competition is to drive the price of identical goods down for consumers. After all, if one can buy the same gallon of milk for a dollar less at Meijer than at Pick ‘n Save, why would a consumer pay more? Sure there are other factors that consumers consider like convenience, service, etc., but everything else being equal, consumers will buy from the lower cost retailer.
Sometimes, businesses will use the practice of a loss leader to attract consumers in the hope those consumers will buy other products, too. This is where a business will sell one product for a price dramatically less than their competitors and often below their cost. It is a practice that cannot be sustained over time without risking bankruptcy, but it can be used as a temporary lure for consumers.
Wisconsin’s Minimum Markup law was passed in the 1930s when Progressives held majorities in Madison to prevent just such business practices. As the preface of the law states, “The practice of selling certain items of merchandise below cost in order to attract patronage is generally a form of deceptive advertising and an unfair method of competition in commerce.”
While the Minimum Markup Law was written in an anti-capitalism spasm of socialist protectionism, the modern justifications for keeping it are essentially two-fold. First, proponents argue it protects consumers by preventing “big business” from moving into a community, selling below cost until the competition fails and then jack up prices. Second, proponents argue by guaranteeing a profit, the Minimum Markup Law protects a diversity of competition by ensuring that small retailers can compete with larger ones.