Wisconsin Minimum Mark Up Law

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  • Topic: Pricing, Law, Filling station
  • Pages : 5 (1942 words )
  • Download(s) : 75
  • Published : November 16, 2013
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The Wisconsin minimum mark-up law (also known as the Unfair Sales Act), sec. 100.30, is a law that was passed in 1939 forcing retailers (gas stations) must markup their prices for motor vehicle fuel either 6% above what they paid for it or 9.18% above the average terminal cost advertised in their area, whichever is greater. One point to note is that the 9.18% is not the retailer’s marginal cost but it is a terminal price, which is more than likely higher than the gas station’s actual cost, putting consumers in a worse position. As the main controversy of the law lies within the premium pricing of gasoline, the law also applies to the sales of prescription drugs, alcohol, cigarettes, and other products sold within the store. When first variation of the law was passed, the law ordered the price floor of gas to be at above 6%. Later, when the law was amended in 1998, the price floor that was added was set at 9.18% forcing wholesalers that paid a certain amount of dollars to pay a higher percentage as they purchased more gas. Moreover, the 9.18% is not a fixed number. The actual markup on gasoline may be more or less than that amount if needed in order to meet local competitor’s prices. Prior to the newer variation of the law, the Wisconsin law required the per gallon markup to be 21 cents per gallon. Recently, however, the law has been ruled to be unconstitutional on based on the grounds that it violated federal anti-trust prohibitions on the restraint of trade between states, thereby eliminating the gasoline price premium. The main purpose of the minimum markup law was to cover a proportionate portion of the cost of doing business while also protecting independent gas station owners from drastic price changes and competition which may be harmful to their businesses. This type of predatory pricing larger business may impose could not only force the smaller independent gas station owners out of business, essentially creating unfair sales, but if this were to happen, it would also extend the problem by leaving price determination up to the big businesses, who then would be able to set their own higher prices and monopolize the gasoline market. If we allow this to happen, then larger gas station owners will essentially be able to control the domestic price market for gasoline which would then create an inflation in prices upon their demand. The most recent ruling regarding the Wisconsin minimum markup law declared it to be unconstitutional on the grounds that it violated the federal anti-trust prohibitions on the restraint of trade between states. The judge presiding over the case was chief federal district judge Rudolph T. Randa of the Eastern District of Wisconsin. Randa ruled that the Unfair Sales Act violated the federal antitrust statute called the Sherman Act (ch. 647, 26 Stat. 209, 15 U.S.C). The Sherman Act provides that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” In his ruling, Randa wrote, “It forbids retailers from selling motor vehicle fuel below cost, which is based on the average posted terminal price plus a minimum markup of 9.18%. In addition, the state’s evidence confirms that retailers must hold their posted prices for at least 24 hours. The minimum markup percentage creates a range in which competitors may engage in collusive parallel pricing, which is exacerbated as the wholesale price of gasoline fluctuates. Therefore, the Act is a per se restraint of trade because it authorizes and enforces a parallel (or horizontal) pricing policy.” Therefore, if the current ruling were to stay in place, it has a potential to cause price fixing which in turn reduces brand competition, which then has the possibility of leading towards a decrease in demand. This ruling, from Chevron’s perspective, is great news. With Chevron Oil being the fourth largest conglomerate in the world...
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