Protecting the Consumers from Low Gas Prices

Decades ago, anti-trust regulation abandoned any pretense that its goal was protecting consumers.  The vast majority of anti-trust laws and cases today are more about protection of businesses from competition.  A good historic example is the Microsoft case, where consumers were bravely protected by the government from getting various utilities included free with their operating system.  You only had to look at the major defenders of the anti-Microsoft anti-trust suit (e.g. Sun, Oracle, etc) to know that the suit was about protecting other businesses rather than protecting consumers.

It would be difficult to find a better example of this today than for gasoline in Maryland:

A gasoline price war erupted in St. Mary's County last week after one station
slashed its price for regular to $1.999 a gallon and spurred three others to
follow suit, giving drivers some hope of relief at the pump.

But the price dip proved fleeting.

Maryland regulators quickly stepped in and told the stations that their prices
were too low. They needed to go up by 5 cents...

The sudden fluctuation in the Lexington Park area was the result of a
little-noticed Maryland law that took effect in 2001. The General Assembly
mandated that stations cannot charge less than what they pay for gas -- unless
they're lowering prices to compete with a nearby station.

The rationale for the law is ostensibly this:

Independent service station owners pressed lawmakers for the measure as a way to
protect themselves from big retailers selling gas below cost to drive them out
of business and limit competition. Maryland is one of at least 13 states to
adopt similar laws, which are not in effect in the District or Virginia.

First, its not the government's job to protect individual businesses.  Businesses should be treated like adults who knew the risks they were getting into in a business.

Second, this argument is specious anyway.  The logic is that ostensibly these dealers will be driven out of business, and then the big guys, without competition, will jack up their prices.  This is absurd.  It is important to note that it never happens this way, not for any sustained period of time in any market in the hundred years of gasoline retailing.  Gasoline retail margins are low, have been low, and will always be low.  If they ever creep up locally, someone has the incentive to undercut prices because volume is so important to profitability.  In fact, people have accused Wal-mart of this for years - ie they cut
prices and drive out the independents.  But so what, particularly if
prices never go back up?  This is even more true in gasoline retailing because gasoline station capacity never really leaves the market.  Because of the unique nature of the infrastructure, and the environmental rules vis a vis underground tanks, the best use for a gasoline station sold in bankruptcy is another gasoline station.  Even if an independent goes bankrupt, the site will likely stay a gas station, under different ownership.

Finally, in the current gasoline market, there are very good reasons not related to driving competitors out for one to sell gas under cost.  Many modern gas stations make as much or more profit on their convenience stores, car washes, and other services than they do on gas.  I know my company does in the few places where we sell gasoline.  Using gasoline as a loss leader to bring in convenience store traffic is perfectly valid.  Grocery stores have been doing this with eggs and milk for years.

This type law is a lazy protection device for a few companies that happen to have political clout in the government.  Maybe the IJ will get on the case. has commentary and examples from other states.

Update:  One should also note that it various circumstances, the oil industry has, in addition to this case where a company was hit by the government for selling at a lower price than competitors, been accused of gauging (selling above cost and other competitors) and collusion (selling at the same price as competitors).  The Mises Blog has a nice link to R.W. Grants the Incredible Bread Machine, a poem that includes this stanza:

"These very simple guidelines,
You can rely upon:
You're gouging on your
prices if
You charge more than the rest.
But it's unfair competition if

You think you can charge less!
"A second point that we would make
help avoid confusion...
Don't try to charge the same amount,
That would
be Collusion!
You must compete. But not too much,
For if you do you see,

Then the market would be yours -
And that's Monopoly!



  1. The Club for Growth Blog:

    Tuesday's Daily News

    The Ignorance Strategy - Herman Cain, A Corporate Lefty - David Hogberg, American Spectator 7 Republicans Abandon GOP on Filibuster - C. Hurt, Wash Times The Highway Bill: Crying For a Veto - PTR Editorial Bush’s Mighty Pen -...

  2. LovinBush:

    man why are so many people pissing around over a few cents increase in gas? Blaming it on the president , like hes in control of OPEC or something. Our fine president just got his Energy bill passed and Im quite sure this should help the situation. Americas economy is strong and so is the Integrity of our Great President. Im sure hell show all of you whiny asses in his third term .

  3. john:


    We currently drive a Yukon 8 tanks per month and a VW New Beetle
    diesel 4 tanks per month.

    MPG before pill, Yukon=18mpg, Beetle = 44.
    15% increase with pill:18x.15=2.7mpg increase yukon
    44x.15=6.6mpg increase beetle

    MPG with pill:Yukon = 20.7mpg or 21mpg
    Beetle=50.6mpg or 51mpg giving benefit of doubt.

    Gallons per tank fill:Yukon=20 gallons roughly
    Beetle=11 gallons roughly

    Miles per tank:Yukon = 20x21=420miles with pill
    Beetle= 11x51=561miles with pill

    Yukon=20x18=360miles without pill
    Beetle=11x44=440miles without pill

    Extra miles per tank with pill:Yukon=420-360=60miles per tank
    Beetle=561-440=121miles per tank

    Yukon: 8 tanks monthly x 60 miles per tank increase = 480miles
    roughly that I will go further.

    Beetlt: 4 tanks monthly x 121 miles per tank increas=484miles
    further roughly on those tanks.

    That earns me about 1.5 tanks of gas monthly for the yukon and 1
    tank monthly on the beetle. It costs 2.29 per gallon x 20
    gallons=$45.80 per tank yukon and 2.49per gallonx 11
    gallons=$27.39 per tank beetle. Add it all up and I would gain a
    value of 1.5x 45.80=$68.7 with yukon and add 27.39 with beetle.
    68.7+27.39=$96.09 earned by using pill.

    Auto ship costs 59.00 monthly for 50 pills . I would use 4 pills
    per tank x 8 tanks yukon=32 pills monthly yukon plus
    2pills per tank beetlex4tanks monthly=8 pills monthly beetle.
    Total pills used monthly=40 leaving 10 pills surplus. Taking 96.09
    earned - 59.00 spent =$37.09 gain.

    I am not sure what to do with 10 extra pills monthly. This assumes
    that I will get the 15% increase on both cars. I will listen to
    some calls. Does it potentially harm the vehicle? What do you
    think about the intelefone. The benefit it gives anyone is that we
    all spend x amount of money on phone service monthly. Immediately
    one can buy some of that service from themselves with the
    intelefone. Free affiliates can even earn commissions on their
    level one phones. I use the adapter at home and my office on the
    $14.95 monthly giving me 500 minutes of calling to any phone in the
    US or Canada. I have yet used that many minutes because Intelefone
    to Intelefone is free anywhere in the world and I have my parents
    and in-laws on the service so all that calling is free and does not
    decrease my allowed minutes. I kept the bare minimum phone service
    with Bell South, about $35.00monthly + 14.95 monthly with the
    intelefone giving me a total bill of about 50.00 monthy whereas
    before my average bill was 68.00 monthly with Bell South local and
    long distance. Let me know what you think.

  4. Anonymous:

    Hi all!
    Did you know that people are consciously aware of their driving patterns when trying to prove on an investment they've made? Hence, spend $75.00 on a product and'll not do rabbit starts...stops...thus saving on gas. Which in turn, promotes your theory on the investment. For those of you out there actually falling for this SCAM...I have a few hundred acres of soon to be ocean front property in Arizona for sale..

  5. fuel freedom international distributor:

    I as my name says am a distributor of the MPG-Caps and I will be honest I am not totally sold on the idea. On the other hand I would sure hate to miss out on a big thing if it's proven they do work for the mass public. I personally have seen a small increase in mileage and have tried my best not to change my driving habits. Some of my fill-ups have brought great results but others weren't so great. If the products (any of them) work than let's see them proven scientificly. Meanwhile I'm not afraid nor ashamed of my 300 dollar investment. Heck I could have gambled on the superbowl and done worse.