When Low Prices Are Illegal

Imagine if selling a product at a good price point was illegal. Well, you don't have to imagine it after all...

Whenever I find a particular item on sale, it almost always makes me ponder for a moment if I should buy it. Seeing the original price and the new price sometimes makes me want to grab it and say “look, I saved 50% on this!” Sure, I spent money on it, but whatever the item was, hopefully it was something I actually needed.

Now let’s say for a moment that this great price I found on that item was actually illegal. You might think the idea was preposterous, but it’s actually true in many U.S. states, 26 to be exact. How could such a law actually be on the books, and what exactly do these laws entail?

According to C.J. Szafir, executive vice president at the Wisconsin Institute for Law and Liberty, and Patrick Gleason, director of state affairs at Americans for Tax Reform, these laws were enacted during the Great Depression as a measure to “soften price competition” and keep businesses afloat.

These states prohibited businesses in their jurisdiction from selling their products at or below cost, and some even had certain percentages which they were required to sell above cost. One of those states is Wisconsin, and the subject of the issue now is a regional superstore, Meijer.

In 2015, when it opened its first two stores in the Badger State, the greeting Meijer received was far from “Wisconsin nice.” Rivals filed complaints accusing it of pricing 37 items—including bananas, dog food, ice cream and Cheerios—below cost. Meijer, which runs 200 stores in five states, says this was the first time it had ever been accused of hurting consumers by charging too little. Nonetheless, Wisconsin’s Department of Agriculture, Trade and Consumer Protection sent the superstore a letter explaining the requirements of the state’s Unfair Sales Act.

Krist Oil is another company in a similar situation. The family-owned company operates in Michigan’s Upper Peninsula and in Wisconsin. It can determine competitive pricing min Michigan, but it cannot do so in Wisconsin.

Although it wants to lower prices, Krist is forced by the state to charge a markup of no less than 9.18%. The biggest losers are workers in rural Northern Wisconsin, who could benefit from lower gas prices.

The Depression era argument for the law was that price controls were necessary to keep the economy from crashing further (though that only made recovery more difficult). The modern argument is that price controls are necessary to protect smaller businesses from large corporations that could undercut pricing because of larger volumes.

However, that claim is not true, as a study in 2017 proved that there is no causal relationship between minimum-markup laws and the number of small businesses. So the idea that it’s needed to protect small businesses is simply not true.

Yet the laws remain on the books, and they are actually being enforced. The ones who suffer the most from this are not the businesses, but consumers, especially those in the lower and middle class.

[M]inimum markups do hurt consumers, since they act as a hidden tax that disproportionately harms poor and middle-income households. Wisconsin’s markup law increases the price of back-to-school supplies, such as books, markers and crayons, by 12% to 146% compared with neighboring states, according to a study last year by the MacIver Institute, a conservative think tank.

If there’s one thing that anyone should know, it’s that you should not harm the poor (or anyone, for that matter). So why are there laws on the books that disproportionately affect the poor, yet are in full force without much controversy?

Perhaps the public is just ignorant of this; after all, if you’re used to a certain price system, why should anything prompt you to think differently about it just because prices may be a bit higher in this state than that state.

This is an important issue because it affects everyone, but especially the poor. Repealing these laws should be part of a larger poverty alleviation effort in the United States. It’s one small piece of a larger puzzle, but it’s an issue that people of almost all political persuasions should be able to agree upon: repeal laws that make life’s essentials more expensive.