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.
The problem with both of those arguments is neither are true. There is no evidence of large retailers using loss leaders to bankrupt competition and then increasing prices in the long term. The reason is economies are dynamic and consumers are mobile. If Wal-Mart in West Bend, for example, were to sell all of its goods at significantly below cost for a period of time, some other retailers may go bankrupt. But as soon as Wal-Mart raised their prices, consumers could travel to a neighboring town and another store could easily move into West Bend with lower prices. Market pressures keep Wal-Mart’s prices – and other retailers’ prices – competitive.
A study recently released by the Wisconsin Institute for Law and Liberty disproves the second argument. The study was co-authored by WILL’s William Flanders and the Cato Institute’s Ike Brannon. The study looked across all 50 states. Slightly less than half of the states have a minimum markup law similar to Wisconsin’s and a few have it just for gasoline. The rest of the states have no such law.
WILL’s study found there was no statistical difference in the number of small retailers or gas stations between states with a Minimum Markup Law and those without. For all of the proponents’ rhetoric about protecting Wisconsin’s small businesses, there is no evidence that in more than 80 years Wisconsin’s Minimum Markup Law being in effect it stops anything other than Wisconsinites from getting a good deal.
Wisconsin’s Minimum Markup Law is an antiquated anti-consumer law rooted in a discredited economic theory. It does not accomplish the goals it purports to achieve and forces consumers to pay more than necessary for essential goods. It is time to repeal Wisconsin’s Minimum Markup Law once and for all.
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Side note – Owen Robinson is a local blogger who publishes Around the Bend every Saturday.
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