Wisconsin Minimum Mark Up Law

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 and with our positive reputation, the new ruling will allow Chevron to lower our prices which in turn will increase our total revenue. Since we are able to make wholesale purchases and get large discounts on our gasoline, we no longer have to markup our gas prices and we can keep a very low profit margin on our gasoline, which will in turn attract customers. With the increase in customers, we should be able to reasonably expect our in store sales to increase as well, which is where we expect a majority of our profit to come in from anyways.

Moreover, from Chevron’s perspective, we should be worried that the current ruling does not get appealed because if it does we potentially can be worse off than we were before because of being forced to change our prices drastically which has a negative impact towards our market. From a personal perspective, I agree with the ruling of the law to be unconstitutional as well. Although the recent ruling of the law does not cause a concerted action for the fixation of gasoline prices, it still does indirectly impose a form of price fixation.

The prices are not fixed but it still forces gasoline retailers to set their prices according to Legislation, which otherwise would be illegal. This type of parallel pricing which is imposed if the law were to stay in place is exactly what the Sherman Act prohibits. Moreover, the main arguments to the law being in place are basically that smaller independent gas station owners will be driven out of business by the larger competitor’s ability to lower their prices. Rarely, however, does it occur that the larger competitors lower their prices to a point where smaller independent gasoline retailers cannot keep up with.

We, as consumers should want the current ruling to stay in place because it means lower gas prices. If the state were to appeal the law, this would mean that gas prices would be taxed and the extra money coming from the minimum markup law would be funneled from the consumers to the gasoline retailers. Moreover, since the minimum markup law not only affects gas prices, (it affects a large majority of the items that are sold inside of the gas station, too) consumers would be paying the extra cost on almost everything they purchase from the gas station.

Moreover, with the current gas prices rising and the previous ruling in place as a percentage of sales, this can only mean that the amount that we as consumers will only increase exponentially. When the ruling was originally created, the average gas price in Wisconsin was $1.03 which would result in a minimum markup of anywhere around 9 to 13 cents. With the average gas price of almost twice that, and gas prices upwards of $4.00 already having been seen, this would mean that the minimum markup would cost us as consumers even more. If given the chance, the people most likely to appeal the current ruling would be independent gas station owners. They are the main people that are being affected negatively by the law.

The law in itself directly affects large and small gas station owners, as well as everyone that purchases gasoline from retail gas stations. The people most likely to say that the current ruling is a good thing for the state and that it doesn’t need to be appealed are the consumers who are being given a break in prices which they may need to make purchases for every week or two. The other group of people that it would have a positive impact for is the state itself. They would be getting a break on costs that they would have to bear if the law were to stay in place such as supervision fees, law reexamination, and/or fees relating to monitoring the current market conditions.

Attorney General J. B. Van Hollen recently announced that he will not appeal the federal court ruling that found the state’s minimum markup law to be unconstitutional. Van Hollen announced that as a result of the intervention of the Wisconsin Petroleum Marketers & Convenience Store Association and because of a request by the Department of Agriculture, Trade, and Consumer Protection he has come to a decision that he will not attempt to appeal the case.

Moreover, he also said that if one wanted to appeal the case, Legislature would be a better place to appeal, since the law that made the minimum markup law was a federal act. If the current ruling stays in place, meaning there is no minimum markup price on gasoline and gas stations can set their own prices, then conglomerate gas stations can competitively set their own prices by undercutting smaller gas stations who cannot afford to sell their gas for the discounted amount.

This means, if you are an independent business owner who does not need to purchase large, wholesale amounts of gasoline, you will lose business because consumers will take their business to the larger, more competitively priced gas stations. If there was no minimum markup law, this, for consumers, would virtually eliminate brand preferences and brand competition between gas stations and it would not allow one gas station to compete over another. A state like WI would want to create a law such as the minimum markup law because they would benefit from the As you can see, there are many ethical benefits for Wisconsin to impose the minimum markup law.

Conversely, there are benefits for consumers and independent gas station owners as well. When it comes to determining who is right and who is wrong about the situation, we all should let the laws that precede us decide. In 1997, the case became brought about by Flying J. Inc. when they were sued by Lotus Business group for violating the law. Lotus Business Group, LLC v. Flying J, Inc., 532 F.Supp.2d 1011 (E.D. Wis.2007) Later, the law came up again as a Utah based company, Flying J., Inc., sued the state of Wisconsin; the ruling later became upheld statewide. Flying J’s attorney was Jonathan A. Dibble.

Dibble was arguing that the law was preempted because of a lack of supervision by the state. Most importantly, the case is important in the world of business because it affects almost everybody. It affects anyone that purchases gas as well as the people who use forms of transportation that can only occur if gasoline is used. For example, Madison Metro recently increased it’s fare to use the bus system because their costs were increasing. If their costs increase that means that their profits decrease. Madison Metro would not approve of this so they raise their fees.

So, in the end, consumers and people who use forms of transportation with gas operated engines are the ones paying the extra fees. The increased gasoline fees means and increase in the costs of transportation, shipping, traveling, taxes and many other things as well. These increased fees not only have a negative impact on the consumers, but it has the potential to slow down the amount of sales occurring. As you can see, the Wisconsin minimum markup law not only affects consumers and businesses, but it also affects the national world of business.

Bibliography Bozzo, Tom. “Will Wisconsin’s minimum markup law finally go away?” Marginal Utility. 5 Jan. 2009. 29 Apr. 2009. Forster, Stacy. “Wisconsin’s markup law adds 8 cents to gallon of gas, study says.” Journal Interactive. 24 Jul. 2008. 29 Apr. 2009. Moore, Richard. “Federal judge rules minimum markup law unconstitutional.” Lakeland Times. 17 Feb. 2009. 29 Apr. 2009. Ziemer, David. “Judge stops enforcement of Wisconsin’s minimum markup law.” Wisconsin Law Journal. 23 Feb. 2009. 29 Apr. 2009. LexisNexis. LexisNexis. Edgewood College Library. Madison, WI.