Some good news from the session, repeal of the minimum mark up on gas

The 2023 legislative session saw a torrent of mostly bad policy passed into law. Gov. Walz, among others, called the session “Transformational” and I would not disagree. As I wrote recently:

Our state is about to move from the “fool around” to the “find out” stage of voting for ever higher taxes, ever higher government spending, and ever bigger government.

But that is not to say that there were not some positives from the session and we should point these out too. One of these was the repeal of Minnesota’s minimum markup on gasoline.

Under this measure, enacted in 2001, Minnesota law has required that gasoline be sold with a minimum 8-cent per-gallon markup on the wholesale cost. The reasoning for this was that some — larger — retailers were engaged in “predatory pricing.” This is said to occur when a retailer, usually a large one, uses its deeper pockets to sell something below cost thus driving smaller retailers out of business. When this has been done, the big retailer is able to charge whatever high price it likes, freed from competition.

Predatory pricing is one of those things that is found more often in theory than in practice. A newly monopolistic retailer which can charge whatever high price it likes for, say, gasoline, will generate decent profits, but these will attract new entrants into the market. The retailer’s only protection is barriers to entry, in which case these, not the pricing strategy, are the problem, or they can keep their prices low to keep competitors out, in which case there is no predatory pricing.

When businesses raise prices they are accused of “price gouging.” When they cut prices they are accused of “predatory pricing.” Such is the juvenile worldview of those who see the economy as a story of goodies and baddies rather than as the interplay of hundreds of millions of individual actors which might, in some circumstances, generate higher prices, and, in others, lower ones.