My column for the West Bend Daily News is online. Here it is:
It is always exciting to see new businesses move into Wisconsin. Meijer, which is headquartered just across the lake in Grand Rapids, is moving aggressively into Wisconsin. Four Meijer Supercenters are already open and several more are planned — including a massive, morethan 192,000 square-foot store in West Bend. But Meijer is finding that some of Wisconsin’s antiquated and anti-free market laws are threatening its growth.
The communities in which Meijer is building new stores in southeast Wisconsin is already saturated with grocery stores. Meijer is moving into those communities knowing full well that they will have to compete in a market where supply is already ample. As such, virtually all of the business Meijer plans to attract will have to come at the expense of already-existing grocery businesses. This business plan is not unique. Many businesses begin in already-mature markets and do quite well.
One of the ways Meijer plans to grow their business is to attract consumers with lower prices. It is a tried-and-true technique to gain market share. But therein lies the rub. Some of the prices that Meijer is advertising for their goods are less than their cost. That act violates Wisconsin’s Unfair Sales Act, more commonly called the minimum markup law.
Wisconsin’s minimum markup law became law in 1939 during the Great Depression as part of a spate of reactionary, anti-free market laws passed by the legislature. It essentially mandates that all businesses sell their products at a certain markup over their cost. The stated purpose of it is to prevent businesses from selling a product at below cost, thus driving other sellers of that product out of business. Then, so the logic goes, the business that was selling the product below cost will jack up the price and gouge consumers. Advocates for the minimum markup law contend that it ultimately protects consumers.
The problem with the advocates’ logic is that it never happens. Wisconsin is the only state in the nation with a minimum markup law — none of the other 49 states have a problem with that theoretical outcome. Instead, what happens is that when a business begins to gouge consumers with inflated prices, other businesses take advantage of the market opening to move in. In other words, in a free market, the laws of supply and demand rule to regulate prices, if only the market is kept free.
There have been attempts over the years to repeal the minimum markup law, but even in a Republican Legislature those efforts have failed. The reason is as simple as looking at who benefits from the law. Existing business interests benefit from the minimum markup law because it inhibits new entrants to the market from competing on the price of goods. In West Bend, for example, existing grocery stores are thrilled that the minimum markup law will prohibit Meijer from attracting customers with lower prices. The minimum markup law is a protectionist racket that insulates existing businesses from competition.
On the other hand, it is the consumers who lose with the minimum markup law. Instead of lower prices caused by competition in a free market, consumers are forced to pay unnaturally inflated prices in order to protect the very businesses that are charging them those inflated prices.
The time has long-since passed for Wisconsin to repeal the minimum markup law. There is still work for the legislature to do this year and repealing the minimum markup law needs to be near the top of the list.
At least you didn’t mention the “mom & pop” businesses as existing businesses that would get harmed by lack of a minimum markup law – usually that is brought into these discussions. I am old enough to have frequented plenty of “mom & pop” businesses in this community, but I doubt that anyone under 30 has ever patronized a “mom & pop” grocery store, gas station, or pharmacy in this community. Specialty shops are a different dynamic – they don’t exist to compete on price. Even Tennies Hardware has multiple locations and are part of a national brand. When growing up, West Bend had quite a few small grocery stores. I don’t miss those days of stale food (no expiration dates on packages), rotten eggs, moldy bread, and spoiled milk. And limited hours. And sometimes surly owners who worked long hours. Ottens was an exception to the rule, but they did compete on price and that generated the volume necessary to have constant turnover of inventory. The small gas stations were also auto repair businesses – two dynamics caused them to stop selling gas. First, it was a waste of a mechanics time to stop working on a car to go pump a tankful of gas – more to be earned on the repair than a few cents on each dollar of gas. Secondly, the environmental requirements of maintaining underground storage tanks meant a lot of gas needed to be sold to recover those costs, so volume became a necessity.
I too wonder about the insistence of hanging on to a “quaint” concept. The “good old” days aren’t coming back – I think consumers started migrating away from small businesses in the late 50’s. What do consumers want? Product variety (including fresh inventory), convenient hours, and prices set by the market.
The biggest problem with getting rid of this stupid law are Kwik Trip and the Petroleum Marketers Ass. They love their anti-competitive free profit built in to their sale of gas…some stations in the UP are getting close to the $2.00 per gallon.
Earlier this summer, I drove through the UP on the way back from lower Michigan. The gas in Menominee, MI, was a full 20 cents cheaper than the gas just across the river in Marinette, WI. Why anyone in Marinette wouldn’t make the 5 minute drive across the river to get gas is beyond me.
Gas was $2.13 in Tennessee last week.
Get back home, and its $2.60.
$2.23 in Rochester, Minnesota on Sunday.
The best advertising any seller could get is
A lawsuit from the state charging them with selling too cheap
I remember why local golf course owners said the Washington county golf course was too good for the prices they were charging
I thought ” that’s exactly what thrifty Wisconsin folks are looking for “
When I lived in Wisconsin, it didn’t bother me about the minimum mark up law because I was young and naïve.
Bu when I moved out West, it was quite apparent that Wisconsin is in te dark ages when it comes to mandatory prices, which is what it is.
I can go buy a gallon of milk for $1.99, buy gas at the cheapest place, sometimes, $.45 less than another store, buy brand name cereal sometimes 1/2 price of another store.
Do we have mom and pop stores? Some, mostly restaurants, but it is not the prices that kills them. Mostly it’s government regulations,fees and poor customer service that do them in.