Minimum gasoline prices
Walter E. Williams
March 31, 2004
A couple of weeks ago, heading down to George Mason University, I pulled
into my favorite Wawa gasoline station just off the Bel Air, Md., exit
on I-95 South. At each of the 20 gasoline pumps, there was a sign posted
that Wawa would no longer dispense free coffee to its gasoline
customers. Why? The station was warned that dispensing free coffee put
it in violation of Maryland's gasoline minimum-price law.
Here's my no-brainer question to you: Do you suppose that Maryland
enacted its gasoline minimum-price law because irate customers
complained to the state legislature that gasoline prices were too low?
Even if you had just 1 ounce of brains, you'd correctly answer no. Then,
the next question is just whose interest is served by, and just who
lobbied for, Maryland's gasoline minimum-price law?
If you answered that it was probably Maryland's independent gas-station
owners, go to the head of the class.
Let's first establish a general economic principle. Whenever one sees
statutory or quasi-statutory minimum prices, he is looking at a seller
collusion against customers in general as well as against particular
sellers, those who are seen as charging too low a price.
This economic principle applies whether you're talking about minimum
wages, minimum dairy prices or minimum real-estate sales commissions.
Members of a seller collusion call for statutory and quasi-statutory
minimum prices so they can charge customers higher prices than they
could otherwise in the absence of a statutory minimum.
You say, "Williams, that's preposterous; how can they sell legislators
on the idea? After all, buyers of gasoline are more numerous than
sellers of gasoline." To answer that question, you have to recognize a
couple of other facts. First, legislators aren't known for being rocket
scientists. Secondly, legislators love campaign contributions, and
satisfying the interests of lobbyists is more important to their
political careers than serving the interests of consumers in general.
Lobbyists such as WMDA Service Station & Automotive Repair Association,
the Gasoline Retailers Association and the Petroleum Marketers
Association of America are able to sell legislators on the fairy tale
that if high-marketing gasoline outlets such as Wawa, Sheetz, Wal-Mart
and others are allowed to charge prices that are too low, they'll drive
all other gasoline stations out of business. Having done so, these
high-marketing outlets could charge any price they pleased and make huge
In economics, we call this strategy predatory pricing. It's an argument
that has a ring of plausibility, but there's little evidence anywhere
anytime that a predatory pricing scheme produced results even remotely
close to what would-be predators envisioned.
Questioning this fairy tale and asking for
evidence would never cross the mind of a legislator.
Another reason legislators can get away with establishing these
minimum-price laws has to do with another economic phenomenon called
"narrow well-defined benefits and small widely dispersed costs." The
beneficiaries of the gasoline seller collusion are relatively few in
number and well organized. The victims, mainly gasoline customers, are
difficult to organize, and the costs they bear are relatively small and
In other words, how many gasoline consumers would be willing to spend
their time and energy fighting to unseat a legislator whose actions
imposed, say, a nickel a gallon additional cost upon them? .
It's cheaper just to pay the nickel a gallon more and forget about it,
but that's not true about gasoline retailers. It is worth their time and
energy to pressure legislators for minimum-price laws, and politicians
Maryland is not the only state with statutory minimum gasoline prices.
It's joined by 12 other states, including New York, Michigan and
Wisconsin. Wisconsin legislators have the gall to call its
government-sponsored seller collusion the "Unfair Sales Act."