A businessman with dozens of stores in Wisconsin is suing the state to be allowed to lower his prices and give consumers a better deal on the cost of gasoline.
He said the state’s ban on that activity “represents nothing more than a transfer of wealth from consumers to business owners who are not forced to compete for business.”
The lawsuit is being brought by the Wisconsin Institute for Law and Liberty on behalf of Krist Oil Company of Iron River, Michigan, and Robert Lotto, a consumer from Green Bay, against the state and its Department of Agriculture, Trade and Consumer Protection.
It’s over the state’s “Unfair Sales Act,” which also is known as the “Minimum Markup Law.”
The law, which originated about the time of the Great Depression, requires all retailers to mark up products a certain, varying, percent because officials wanted to protect mom-and-pop shops from stores like Gimbel Brothers, whose size theoretically made them able to undercut their small competitors and drive them out of business.
“Rather than competing on the merits, endangered businesses turned to the government for help in the form of price controls. They claimed, without much support, that their larger rivals could engage in predatory pricing – charging prices below their costs in order to put them out of business,” the lawsuit explains.
While the U.S. Supreme Court struck down such a move at the federal level, states were still allowed to set levels or prices, and that’s produced Wisconsin’s law.
The move, however, failed.
“By 1930 Gimbel Brothers, founded in Milwaukee as one of the first ‘department’ stores, operated seven large metropolitan stores nationwide including stores in New York and Philadelphia, where it founded the original Thanksgiving Day Parade,” the complaint explains.
Consumers benefited and customers liked the convenience.
Gimbel’s, however, and other “unstoppable juggernauts … themselves eventually fell victim to newer, larger, and even more efficient competitors like Walmart and Costco,” the lawsuit says.
“Far from destroying small businesses, modern digital behemoths like Amazon and Ebay have facilitated their growth by creating new marketplaces in which to sell their goods.”
But Wisconsin’s mandatory minimum markup law stayed.
The Wisconsin Institute for Law and Liberty now has asked for a trial to force Wisconsin to prove that it has a reasonable and compelling interest in impeding commerce and protecting Wisconsin’s consumers from low prices.
“Unlike previous legal challenges, WILL and plaintiffs are asking the court to resolve the law’s contravention of Wisconsin’s constitutional guarantee to earn a living and to benefit from free markets,” the legal team explained.
Hear a description of the case:
“It’s important that the state of Wisconsin publicly stand up and argue how Wisconsin’s constitutional guarantee to earn a living is secondary to ensuring that protected special interests shouldn’t have to be subject to competition and that consumers should pay higher prices than market forces would call for,” said WILL general counsel Rick Esenberg.
“We certainly understand that the legislature has great discretion when it comes to making policy,” Esenberg said, “but the courts should also make clear that politicians cannot play favorites based on some fanciful and implausible notion of public benefit.”
Krist Oil is a family owned network of gasoline stores with some 70 locations in Wisconsin and Michigan.
The owner wants to provide consumers with fuel at the best possible prices, which may be lower than the mandatory 9.18 percent profit the state now demands on gasoline.
“Consumers benefit from … economic innovation. And they are inevitably harmed by protectionist legislation that attempts to stand in the way. In the case of the Minimum Markup Law, Wisconsin citizens are forced to protect inefficient firms by paying them prices that are higher than the prices that would prevail in a truly competitive market,” the lawsuit alleges.
While lawmakers feared “predatory” large firms, “modern economic understanding demonstrates that they were wrong. The fear of price predation is exactly what one would expect from folklore – it is based on myth and irrationality, not on evidence.”
It continues: “Low prices are good for consumers. Charging prices below cost may not be a viable business strategy over the long term, but some market conditions and strategic business considerations make such prices entirely appropriate, rather than predatory. … Prices below costs risk harm to consumers only where there is a dangerous probability that the alleged predator will succeed in forcing its rivals out of business and will thereafter be in a position to charge monopoly prices.”
The case alleges violations of the Wisconsin Constitution.