Repeal of minimum markup law unlikely

By JR Ross

The governor calls it a relic of the 1930s, the Federal Trade Commission says it likely harms consumers and restricts competition, and a judge recently ruled it violated antitrust laws.

But -- like it or not -- Wisconsin's minimum markup law likely isn't going anywhere anytime soon.

Though some lawmakers have upped the efforts to end Wisconsin's Unfair Sales Act, a coalition of legislators and interest groups remain firmly entrenched in their determination to keep the 1930s-era law in place.

Their main argument is that it protects independent retailers in small markets from being driven out of business by a large, national chain that swoops into town. They fear those big retailers can cut its prices unfairly and drive everyone else out of business, leaving a monopoly for itself.

"Bless their hearts, we don't trust the Wal-Marts of the world, and we're not going to anytime soon because we have seen what they have done to the moms and pops, especially in the smaller markets," said Wayne Corey, executive director of the WisconsinIndependentBusinesses Inc., which represents small retailers.

Lawmakers have tried off and on for years to repeal the law that generally prohibits merchandise from being sold at less than cost with a 9.18 percent markup on alcohol, tobacco and motor vehicle fuel.

Higher prices for consumers

At the request of a state lawmaker, the Federal Trade Commission weighed in on the law five years ago, finding that it can ultimately lead to higher prices for consumers, duplicates protections against predatory pricing already found in federal laws and discourages competitive pricing.

This fall, a federal magistrate ruled that the law as it applies to gasoline prices violated federal antitrust statutes because Wisconsin officials had failed to properly monitor it. U.S. Magistrate Judge William Callahan noted the law was last adjusted in 1998, when the required markup was changed from 6 percent to 9.18 percent, and gas was going for about a buck a gallon.

"Given that a markup of 9 cents per gallon was deemed an accurate estimate of the "costs of doing business" in 1998, it seems curious that a markup of 25 to 30 cents per gallon, which is approximately 200 percent greater than the markup in 1998, is an accurate estimate of the "costs of doing business in 2007," Callahan wrote in the opinion.

But the state was not a party to the suit that prompted Callahan's ruling, and he did not issue an injunction ordering Wisconsin officials to cease enforcing the law. Thus, it remains in effect.

Repeats call for repeal

Gov. Jim Doyle again stated his opposition to the law following Callahan's ruling and repeated his call for lawmakers to repeal it. He did the same thing following a spike in gas prices in the wake of Hurricane Katrina.
But that call didn't get much traction. Former state Sen. Dave Zien, R-Eau Claire, unsuccessfully sought to push through legislation in 2006 that would have repealed the minimum markup on gasoline. A bipartisan group of lawmakers used a procedural vote to nix the bill, which also had bipartisan support.

Now, state Rep. Sheldon Wasserman, D-Milwaukee, is pushing legislation that would exempt prescription drugs from the law. In announcing the bill, Wasserman noted that he's supported efforts to end the law in the past, but the chances of the Legislature approving a repeal were "slim."

Still, Republican state Rep. Leah Vukmir of Wauwatosa said she hopes the time is right to move forward with a new approach. Along with state Rep. Bill Kramer, R-Waukesha, she has introduced legislation that would repeal the minimum markup law while beefing up state prohibitions on predatory pricing and monopolistic practices.

Violating those prohibitions could result in a felony under the bill.

Predatory pricing hurts

"No longer will you be able to use the argument that the small mom and pops will be hurt by the Wal-Marts of the world," Vukmir said. "It really can't be said enough that under the current law, consumers are hurt.

But real predatory pricing hurts consumers and retailers. We don't want that, either."

But any efforts to repeal the law now face uphill battles in both houses of the Legislature.

Senate Majority Leader Russ Decker, D-Weston, supports the law, as does Assembly Speaker Mike Huebsch, R-West Salem. It doesn't hurt that Kwik Trip, which supports the law as well, is headquartered in Huebsch's district. With both legislative leaders behind the law, that makes the chances of any changes going through slim.

The law also has a broad coalition behind it. When Zien introduced his bill to lift the minimum markup from gasoline, the groups that registered their opposition to the proposal included the Wisconsin Petroleum Marketers & Convenience Store Association Inc., the Wisconsin Farm Bureau Federation, the Tavern League of Wisconsin and even the Outdoor Advertising Association of Wisconsin.

Corey, of the Wisconsin Independent Businesses, said his organization has long backed the law because many of the small companies it represents fear being undercut by a national chain.

He said that fear was much more intense about a decade ago when Wal-Mart first became a player on the Wisconsin scene. But it's still a very real threat for a good chunk of the organization's constituents.

"We have always held the belief that the big guys will do predatory pricing if they get the chance and do harm to the little guys," Corey said.

JR Ross is the editor at WisPolitics.com.

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