FTC Staff: Wisconsin's Unfair Sales Act Likely Raises Gas Prices

In comments provided on October 15 at the request of Wisconsin State Rep. Shirley Krug, the Federal Trade Commission's Office of Policy Planning, Bureau of Competition, and Bureau of Economics stated that Wisconsin's Unfair Sales Act likely leads to significantly higher gasoline prices for Wisconsin's consumers. The Act prohibits the retail sale of motor fuel at a price below a statutory definition of "cost," where "cost" includes a minimum markup of as high as 9.18 percent. The FTC staff stated that minimum markup laws likely deter pro-competitive price cutting, and that the Act exacerbates this problem by employing one of the steepest minimum markups on retail fuel sales in the country.

In a letter to the staff of the FTC, Rep. Krug sought "assistance and clarification from the FTC" in "assessing the competitive impact of [the Act] on consumers and businesses." Specifically, she asked whether the Act: 1) harms consumers by significantly raising prices; 2) duplicates existing protections against "predatory pricing" found in the federal antitrust laws; and 3) discourages or encourages competitive pricing. In addition, Rep. Krug asked if there are any scholarly studies or court decisions in recent years on "below-cost" pricing.

In its comments, FTC staff stated that the Act likely leads to significantly higher prices for consumers. Unlike federal antitrust law, the Act protects individual competitors, not competition, and discourages pro-competitive price cutting. In particular, the Act subjects vendors to civil liability - including treble damages and a substantial fine per violation - for cutting prices even if there is no likelihood of harm to competition, and even if the vendors have no intent to engage in anticompetitive conduct. The staff also explained that the Act is unnecessary, both because scholarly studies indicate that anticompetitive below-cost pricing happens infrequently and because existing federal antitrust laws already prohibit anticompetitive below-cost pricing.

Todd Zywicki, Director of the FTC's Office of Policy Planning, stated that he was pleased to respond to Rep. Krug's request. "The FTC has a long history of working with state officials to promote competition," he said.

The Commission vote to approve the filing of the staff comments with Rep. Krug was 5-0. The letter containing the comments is available on the FTC's Web site as a link to this release. (FTC File No. V030015, staff contact is Asheesh Agarwal, Office of Policy Planning, 202-326-3558.)

Copies of the documents mentioned in this release are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.