The effects of resale price maintenance laws on petrol prices and station attrition: empirical evidence from Wisconsin

The state of Wisconsin's Unfair Sales Act prevents the sale of any item below cost in order to attract business, and specifically requires petrol (gasoline) stations to mark up their prices by at least 6% over the wholesale price. While the ostensible reason for this law is to protect small, independent retailers and thus enhance competition, the evidence suggests that the primary result of this law has been to inflate the price of petrol for Wisconsin consumers and facilitate tacit collusion in retail petrol markets. Petrol prices in two major markets in the state are examined, as well as in one market outside of the state where no minimum markup is required. The data show that when the penalties for violating the Unfair Sales Act were strengthened, the average markup of retail petrol over the wholesale price increased significantly in Wisconsin without a commensurate change in the average markup in the market outside of Wisconsin. It is also found that price dispersion is significantly lower over a two-year period in the protected Wisconsin market than in the unprotected markets.