Coyote Blog

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.  Overlawyered.com 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
To
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!