Wednesday, May 09, 2007

State Sponsored Price Gouging

It seems like a story from a parallel universe. You know, one where the same people who accuse multinational oil conglomerates of price gouging turn around and perpetrate the very action they condemn all the while leaving their victims no choices. Well such is the case here in Wisconsin where Governor Doyle two summers ago was on a list of signatories for a letter condemning so-called "gouging" at the pumps in the Katrina aftermath.

I'll leave for another day the explanation of why gas stations and their corporate suppliers were and never have been guilty of gouging. For now, here's a little piece for you to chew on. A gas station in Merrill, Wisconsin has been offering discounts of two and three cents/gallon for seniors and boosters which support youth sports, respectively. The state Department of Agriculture was quick to intercede on behalf of a law that prohibits gas stations from undercutting a designated 9.2% markup on wholesale prices. The Unfair Sales Act was created to prevent stations owned by big oil companies from undercutting smaller, privately owned suppliers. It's no wonder the National Federation of Independent Business supports the legislation.

In reality what has resulted is a much higher average per gallon price in the state of Wisconsin than the rest of the nation. According to the AAA's gauge of daily averages, Wisconsin currently exceeds the national average of $3.03/gallon by twelve cents. Our tax burden at the pump is currently the highest in the nation without having to worry about the minimum mark-up law. At $0.321/gallon, the current state gas tax is equal to 14% of the reformulated gasoline futures contract and over 10% of the current statewide per gallon average fuel price.

Price gouging, by definition, is raising the price of a good at a time of adverse supply shock when demand is highly inelastic so as to take advantage of the consumer's need for the given product. That is exactly what our high gas tax and minimum mark-up law are guilty of doing. They are taking advantage of Wisconsinites' need to drive on a daily basis and are prohibiting station owners from discounting for any reason whatsoever. The real gougers, it appears, have seats in the State Capitol ...

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