Wisconsin consumers may soon be paying less for gasoline, prescription drugs, and other merchandise. There are proposals in both chambers of the Wisconsin Legislature that, if enacted, would scale back the state’s misguided minimum markup requirements.
Wisconsin’s minimum markup law, dubbed the Unfair Sales Act, was passed in 1939 with the intent to prevent predatory pricing. Wisconsin’s law prohibits all merchandise, unless in a clearance sale, from being sold below cost and requires alcohol and tobacco products be marked up 3 percent for wholesalers and 6 percent for retailers. Gasoline must also be marked up a minimum 9.18 percent. This misguided policy results in higher costs for all Wisconsin consumers. In fact, Wisconsin consumers have to pay more than other states on many things, such as “Back to School” specials and Black Friday deals.
Currently, 15 states have minimum markup laws that apply to most retail goods and an additional 8 states have gasoline-specific laws. If minimum markup laws were effective in achieving its stated goal, it would be expected that states without such laws would have relatively fewer small business retailers and gas stations. However, a comprehensive study conducted by the Wisconsin Institute for Law and Liberty analyzed data across the 50 states and found that minimum markup laws have no effect on the number of small business retailers or gas stations in a state.
The Federal Trade Commission (FTC) has twice spoken against this law. In its more recent commentary on Wisconsin’s minimum markup law, the FTC said “the Act protects individual competitors, not competition, and discourages pro-competitive price cutting.” Along with disapproval from the FTC, economic literature demonstrates that predatory pricing is a rare event and is even less likely to be successful.
In the Wisconsin Assembly, Rep. Dale Kooyenga (R-Brookfield) has a proposal that reduces the state’s markup law on gasoline from 9.18 percent down to 3 percent. However, his proposal contains a provision to include the state’s sales tax on all gasoline purchases. In the state’s upper chamber, Sen. Leah Vukmir (R-Brookfield) has introduced Senate Bill 263, which repeals minimum markup requirements for prescription drugs and merchandise not including alcohol, tobacco, gasoline, and groceries.
“Government shouldn’t be policing low prices,” Sen. Vukmir said. “Repealing this law and letting free markets bring down prices is in consumers’ best interest.”
Overall, minimum markup laws are a hidden price increase on all goods and a determinant to Wisconsin consumers. While full repeal of Wisconsin minimum markup law would be ideal, the proposed bills are a step in the right direction and would mitigate the harm caused by this misguided requirement.
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