Research & Commentary: Wisconsin’s Minimum Markup Law Faces New Challenge

Published September 2, 2016

Wisconsin’s controversial Unfair Sales Act will soon face new legal scrutiny. The Wisconsin Institute for Law and Liberty (WILL) recently filed a lawsuit in Vilas County, Wisconsin challenging the constitutionality of the decades-old law on behalf of two plaintiffs. Dating back to the Great Depression, the Unfair Sales Act, also known as the “minimum markup law,” limits the ability of Wisconsin companies to charge reduced prices. Implemented in 1939, the law prohibits businesses from selling products below cost. Only 16 states have minimum markup laws today.

The two plaintiffs in the suit are Krist Oil, a Michigan-based gasoline retailer with locations in northern and northeastern Wisconsin, and Robert Lotto, a Green Bay resident. Krist Oil argues it should be allowed to offer discounts to its customers in the same way it can in Michigan. Lotto contends he is forced to pay higher gas prices than he would if the minimum markup law was not in place and competition guided prices.

On a conference call with the media, Rick Esenberg, WILL president and general counsel, argued, “The State of Wisconsin should have to come into court, and it should have to explain why it is reasonable to believe that this law, which prevents business and consumers from entering into low-cost transactions, serves some purpose other than the protection of politically favored competitors.”

According to WILL, the main argument made in the suit is the minimum markup law unlawfully “restricts the economic liberty of Krist and Lotto and their right to earn a living under the Wisconsin Constitution without any compelling governmental interest.”

Supporters of the law argue it protects competition and prevents market disruption by “leveling the playing field.” The law is based on the premise selling below cost is a deceptive business practice that harms competitors who set “fair” prices. Businesses found to be violating the law by the Department of Agriculture, Trade, and Consumer Protection face damages and fines ranging from $50 to $500 for the first violation and $200 to $2,500 for each subsequent violation. The law allows for several exceptions, including price-matching, clearance and liquidation sales, damaged goods, and sales to charities.

Critics of the law argue it is based on inaccurate assumptions about pricing and competition. Larissa Price of the Foundation for Economic Education argues little documentation exists of a monopoly created through minimum markup laws. “Price-cutting is a perfectly normal activity in competitive markets, even when prices fall below cost. When a firm (or group of firms) earns high profits, it entices new competitors into the market. Through the dynamic process of competition sellers compete for the business of consumers, finding new and better ways of doing things in order to offer lower prices and gain customers.” Several efforts to repeal the minimum markup law have failed in recent years.

Price-cutting can intensify competition, because when a company earns profits with lower prices, it attracts new competitors. Competition breeds innovation and better products and services for consumers. Wisconsin’s minimum markup law hinders competition while indirectly subsidizing the business plans of existing companies. Wisconsin legislators should phase out this outdated, disruptive policy.

The following documents provide additional information on the Unfair Sales Act and other business climate issues.

Putting the Squeeze on Consumers
This report from the Wisconsin Policy Research Institute examines Wisconsin’s minimum markup law, provides synopses of various studies on the issue, and examines real-life stories of people and businesses impacted by the law.

Ten Principles for Improved Business Climates
The business climate of a nation, state, or city is the combined effect on businesses of public policies, natural endowments, and other assets that affect business startups and profitability. A good business climate encourages existing businesses to grow, people to start new businesses, and national and international businesses to invest. A poor business climate does the opposite.

Ten Principles of State Fiscal Policy  
The Heartland Institute provides policymakers and civic and business leaders a highly condensed, easy-to-read guide to state fiscal policy principles. These range from “Above all else: Keep taxes low” to “Protect state employees from politics.”

Wisconsin’s Minimum Mark-up Law—The Gift that Keeps on Giving
The MacIver Institute examines Wisconsin’s minimum markup law and how it affects the state: “[T]he Federal Trade Commission already polices … anti-competitive price dumping using existing anti-trust laws. Meanwhile, small retailers often lose out on price anyway because they cannot compete with Wal-Mart’s larger purchasing power forcing down costs from their suppliers, or the effects of more sophisticated inventory control by larger retailers.”

New Retailer Under Fire for Illegally Offering Customers Low Prices  
Nick Novak of the MacIver Institute discusses Meijer’s entrance into the Wisconsin market and the renewed debate over the Unfair Sales Act.

Wisconsin’s Minimum Markup Law: Government Mandated Pain at the Pump
Christian Schneider of the Wisconsin Policy Research Institute examines how the law mandating a 9.18 percent markup on gas in Wisconsin has contributed to skyrocketing fuel prices.

High Gasoline Prices and the Unfair Sales Act in Wisconsin  
Writing in Regulation magazine, J. Isaac Brannon of the Cato Institute argues the state of Wisconsin, through its Unfair Sales Act, has gone out of its way to reduce competition among gas stations, with the predictable result of higher prices.  

Minimum-Markup Laws Gouge Gasoline Buyers  
Larissa Price of the Foundation for Economic Education finds Wisconsin’s minimum markup law increases the cost of fuel for consumers. She questions the rationale for the law.

The Myth of Predatory Pricing  
Thomas J. DiLorenzo of the University of Tennessee at Chattanooga argues the concept of predatory pricing is mythical and the laws constructed to combat it are misguided. “Unfortunately, the doctrine of predatory pricing still motivates antitrust suits and other protectionist pleadings,” he writes. “Significantly, it is legislation and regulation enacted in the name of predatory pricing (not predatory pricing itself) that are truly monopolizing. Government—not the free market—is the source of monopoly.”

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Budget & Tax News, and The Heartland Institute’s website.

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