Dispatches from the Creation Wars

Heads I Win, Tails You Lose

As the old song from The Wiz says – you can’t win, you can’t break even, you can’t get out of the game. Via Radley Balko comes this libertarian joke:

Three guys are in a jail cell. They start to talking and find out that they’re all gas station owners.

The first one says, “I set my prices at a couple of cents higher than my competitors. I’m in here for price-gouging.”

The second one says “I set my prices at a couple of cents lower than my competitors. I’m in here for predatory practices.”

The third one says “I set my prices at the same price as my competitors. I’m in here for collusion!”

And here’s some evidence that this joke is, sadly, all too realistic. The state of Minnesota has just fined a gas station chain $140,000 for selling gas “below the state’s legal minimum price.” I’m sure glad we’ve got the government around to protect us consumers from lower prices, aren’t you?

Comments

  1. #1 Mr. Upright
    February 28, 2006

    Ed,

    Was it a “predatory practice”? I.e. was it a large chain station intentionally taking a loss to drive out competition?

    Presumably not, since you say the price was simply below the state’s mandatory minimum. That’s too bad. If you can run a profitable business by selling cheaper while maintaining legal standards (minimum wage, safety, taxes, fees, etc.) then more power to you!

  2. #2 Will
    February 28, 2006

    I think I understand the goal of the laws and it sounds reasonable to me. It might just be a poor implementation of a good idea; keeping competition in the market.

  3. #3 Ed Brayton
    February 28, 2006

    Mr. Upright wrote:

    Was it a “predatory practice”? I.e. was it a large chain station intentionally taking a loss to drive out competition?

    I don’t see how such a charge could ever be proven. How do you distinguish between lowering your prices to “drive out competition” and lowering your prices to attract business away from your competition? All business is “predatory”. The goal of every decision a business makes should be to take business away from their competitors and drive business to themslves. Companies do this in a thousand different ways, from offering better service to offering lower prices. That’s not “predatory”, it’s good business. And yes, businesses even take losses on some products in order to make more money overall by increasing their market share. They’re called “loss leaders” and there’s absolutely nothing wrong with it. The consumers are the ones who benefit.

  4. #4 ZacharySmith
    February 28, 2006

    Will –

    Having government-mandated pricing is NOT a reasonable (or desirable) goal. Government intrusion in the market is the surest way to stifle competititon – and screw consumers in the end.

    Do you really want the same level of (in)competence and partisanship that exists in, say, public school science standards (in some states anyway), to be injected into the market?

  5. #5 Ginger Yellow
    February 28, 2006

    “Companies do this in a thousand different ways, from offering better service to offering lower prices. That’s not “predatory”, it’s good business. And yes, businesses even take losses on some products in order to make more money overall by increasing their market share. They’re called “loss leaders” and there’s absolutely nothing wrong with it. The consumers are the ones who benefit.”

    Depends on the situation. If the company (or companies in the case of a cartel) are in a dominant market position, or are able to sustain hefty losses in one area of their business because of their size, then they can use loss leaders to force competitors out of business, before putting prices up to higher than they were before. This has happened in Britain, where the big four supermarket chains control 80% of the grocery market and something like half the total retail market. They opened up out of town stores, drove the town centre shops out of business by loss leading on staples like baked beans and milk, then bought up the unwanted leases to make “Metro” stores before jacking the prices up again.

    All that said, having an actually mandated minimum price, as opposed to a more generalised competition law, is a bit off unless it’s an environmental thing.

  6. #6 dan7000
    February 28, 2006

    ZacharySmith – you said:

    “Government intrusion in the market is the surest way to stifle competititon – and screw consumers in the end.”

    That’s not true where government steps in to bust a monopoly. Most recent example I can think of is the AT&T breakup – clearly there was significantly *more* competition in the telephone market after that breakup.
    I think that even in the absence of a pure, total monopoly, the “free market” can lead to a totally *anti*-competitive equilibrium – the prime example of that being price-fixing: when a group of companies collude to raise prices and all agree never to undercut the other. They all profit more that way. Of course they also have to keep out competitors, which is surprisingly easy in many industries where the existing corporations can pressure customers and key partners not to do business with low-cost competitors (e.g. SFO Airport refuses to deal with Southwest Airlines and others, allegedly because of pressure by its main tenant, United).

    Again, the only solution for this is government regulation making such price-fixing and anti-competitive dealing illegal. And again, such regulation actually results in *more* competition.

    Neither of these rationales explains the Minnesota law, which I’m not defending.

  7. #7 Will
    February 28, 2006

    ZacharySmith – I never argued for “government-mandated pricing” or suggesting that it was “a reasonable (or desirable) goal”. If you read the article, as I did, you would see that the goal of the law, according to the article, “… was intended to prevent large oil companies from driving smaller competitors out of business…”. I consider that a reasonable goal for all of the reasons that Ginger Yellow mentions above.

    I then suggested that the law “might just be a poor implementation of a good idea”. I even mentioned (for those who might not have read the article), what I thought the goal was, “keeping competition in the market.”

    As to your point about government intrusion into the market being, “the surest way to stifle competititon – and screw consumers in the end.”, I completely disagree. Certainly poor governmental regulation can cause terrible damage, and thus should be done very carefully, it is also one of the only ways to protect customers and the public from poor business practices. Organizations like the SEC, EPA, OSHA, et.. as well as anti-trust laws help protect customers from business practices that range from reprehensible to simply anti-consumer. Are some of them done wrong, surely, but you don’t throw the baby out with the bath water.

  8. #8 tubi
    March 1, 2006

    I drive past one of the stations in question every day to and from work. It is branded as an Exxon station, but the banner sign over the entrance/exit doors reads “THIS IS MY STATION”.

    The logic behind this law is to prevent giant retailers like Walmart from coming in and selling gas at rates significantly lower than smaller retailers can afford to do. Loss leaders are OK on a limited basis, but with the kind of money Walmart makes, they can afford to sell at a loss on gas basically indefinitely. Ironically, the law is designed to protect small stores.

    At this particular station there have also been problems with quality. The guy who fixes my lawnmower told me he spent about 2 weeks fixing things like mowers, chansaws, snow blowers, etc, that had fried engines because of the crappy, watery fuel the owners had purchased at this place. And he knew people driving Caddilacs, Lexus’, etc, who tried to save a few cents on gas and ended up with transmission repair bills for $500.

    This is the second time in about a year this station has ben closed, by the way.