What?

A Wisconsin gas station owner has been told by the state that he can no longer offer discounts to senior citizens and sports boosters.

But the state Department of Agriculture, Trade and Consumer Protection says those deals are too good: They violate Wisconsin’s Unfair Sales Act, which requires stations to sell gas for about 9.2 percent more than the wholesale price.

[BP station owner Raj] Bhandari said he received a letter from the state auditor in late April saying the state would sue him if he did not raise his prices. The state could penalize him for each discounted gallon he sold, with the fine determined by a judge.

Well.  Alrighty then.  BP’s second-quarter profit was $7.27 billion, an increase of 30% over last year.  Exactly why do states need to set floors on gas prices?

10 Responses to “What?”

  1. Dan says:

    You’re right. The state should de-regulate gasoline prices.

  2. Brian says:

    I just left a comment, did it get spammed?

  3. Brian says:

    Original comment, sans the hyperlink that may have gotten me flagged as spam:

    First of all (I always feel compelled to point this out) BP’s profit margin
    was only 10%, which is actually quite modest. Sure, their total profit amount sounds excessive, but their cost base actually is excessive. If you want to see excessive profit margins I’ll be happy to point out a number of companies that I would bet you consider more virtuous than BP (like Google).

    Alabama has a similar law by the way. Essentially, the government claims that these laws are necessary to protect small gas retailers. I prefer to see the free markets work myself.

  4. Kathy says:

    Brian, the spam blocker caught it. Who knows why…

    IIRC, Pantry stores are suing Costco in Alabama using the law you reference. I don’t buy the “protect smal retailers” reasoning — if the legislature really wanted to protect small retailers, it would subject Wal-Mart to price floors on everything it sells.

  5. Jamison says:

    Kathy, as we discovered here in Maryland, if you make a law that focuses on one particularly predatory company it’s ruled unconstitutional. So politicians makes these wide net laws that are designed to level the playing field for everyone. The major vendors have the ability to run at a level with no profit at all because they can diversify into other areas and run small business people out of business.

    The free market argument that Brian is purposing as the cureall to every single problem on earth, fails to take into account that the only logical outcome of a capitalist system is a monopoly. The government regulations to keep the unnatural state of competition alive and well.

  6. Jennifer says:

    Hey I lived in Wisconsin for two years. I never got cheap gas, except when I ate cheap cheese!

  7. Kathy says:

    Jennifer, :).

    Jamison and Brian, I’d probably feel more sympathy for the oil companies’ “thin” profit margins if 1) they weren’t the recipients of huge amounts of corporate welfare, 2) they didn’t compensate their top executives (and former executives) at such ridiculous levels, and 3) they were making real progress in their quest for alternative energy. The “free” market works well in economic theory, but it doesn’t exist in the real world, even without price floors.

  8. Brian says:

    Jamison,

    Harmful monopolies only exist in capitalist systems as a result of some form of government intervention. Pure capitalism does in fact prevent harmful monopolies.

    Kathy, I’ll address your last comment point by point:

    1) If you are referring to subsidies, I agree. Tax breaks are ok because that cost savings is passed on to the consumer and allows publicly traded, U.S. based companies to at least compete with state owned (and funded) foreign companies.

    2) I agree. The only counterargument I would make is that as a shareholder in “big oil” – and virtually EVERY BODY with a 401k or government TSP owns some amount of big oil stock – I would rather pay executives obscene amounts of money if it helps my own bottom line than to pay a bargain basement salary and see the stock value plument as the bargain basement staff gets bested by the better compensated competition. I personally favor the push to bring executive compensation (total compensation, that is) to the light of day so that shareholders and stakeholders can hold the boards of directors who approve lavish pay packages to account.

    3) Oil companies do not have a fiduciary responsibility to pursue alternative energy. Their responsibility is to maximize profit for shareholders. One could argue that pursuing alternative energy sources is a good growth opportunity, but most big oil companies don’t seriously believe that at this time.

  9. bill says:

    Brian,

    I’m normally a pure free market guy myself. As such, you stated the position well. However, I do have mixed emotions on oil. Not that the oil companies jobs are not to maximize shareholder wealth. Clearly that is correct. However, as a matter of national (security) policy, it is critical that our country as a political unit stop having the oil companies set energy policy. We must develop alternative sources and conservation so that we can tell our dear friends tin Saudi Arabia to drink their oil and eat their sand. And if the various religious factions in that part of the world feel the need to blow each other up, they can feel free to as they don’t include our service people in their foolishness.

  10. Brian says:

    Bill,

    Bashing companies for making money or being large is foolish, but now we’re talking actual policy. I couldn’t agree more with your position. Free market ideals work 90% of the time, but there are extenuating circumstances where government intervention is warranted. National security is one and the environment is another (I personally do not feel that the free market adequately prices in life cycle costs).

    To address the national security concerns created by reliance on foreign oil from unfriendly places I would support increased gas taxes – provided every penny of revenue was offset by tax cuts elsewhere. I don’t want to use national security as a ruse for simply growing government. That would force the hand of the free market and make alternative energies available sooner rather than later. I personally feel that government subsidization of particular alt. energies is foolish because the government is likely to pick the wrong one and may not fully think through the consequences of their choices. The most striking example is the increase in corn prices due to subsidization of ethanol, which will only cause more people to go hungry in the long run.

    Clearly gas taxes will hurt the oil companies, but I’m not terribly sympathetic. As the Marines say: improvise, adapt, overcome.

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