Have you noticed how low gasoline prices have been lately? No? Apparently you haven’t been paying attention.
Fortunately, a representative of Burch Oil, which sells gasoline in Southern Maryland from Burchmart convenience stores, was paying attention. When prices dropped too low at gas stations down the street last week – to 199.9 – he knew just what to do: get on the phone.
It is against the law to sell gasoline too cheaply in the state. The state of Maryland was soon on the case, and within a few hours the state forced the gasoline prices back up.
The front page story by Washington Post staff writer Justin Blum does a pretty good job of telling the story:
A gasoline price war erupted in St. Mary’s County last week after one station slashed its price for regular to $1.999 a gallon and spurred three others to follow suit, giving drivers some hope of relief at the pump.
But the price dip proved fleeting.
Stock prices, economic forecasts and consumer confidence show that ever-more-volatile oil prices have become a barometer by which consumers, investors, corporate executives and even voters gauge the future.
Maryland regulators quickly stepped in and told the stations that their prices were too low. They needed to go up by 5 cents.
Blum goes on to explain that “independent service station owners pressed lawmakers for the measure as a way to protect themselves from big retailers.” Of course, what the independents say is that they are trying to protect consumers:
Paul Fiore, director of government affairs for the Washington, Maryland, Delaware Service Station & Automotive Repair Association, said that without the law, chains would force independent operators out of business and eventually increase their prices….
“You have to look at where the market will be . . . after competition is removed,” Fiore said. “Protecting competition creates a better consumer market. I don’t see any hard evidence that this has been harmful to consumers.”
On the other side of the issue:
Opponents say the law deprives consumers of the benefit of competition because it creates an artificial price floor. Even if independent operators were driven out of business, they said, the market would remain competitive.
“These laws are not necessary,” said Mitchell J. Katz, an FTC spokesman. “They hurt competition.”
So the Feds got it right this time.
The story says, “Several economics professors were unable point to any definitive research showing that the law would ultimately hurt or benefit consumers.” Just off the top of my head I don’t have a citation, but some of the best experimental economics on these kind of rules was done by Cary Deck and Bart Wilson. The paper is available from Bart’s website here (PDF format). An overview of the work was published in Regulation magazine as “Economics at the Pump.” Lynne has posted here about the Deck and Wilson research.
Folks in Maryland may want to contact their governor or state legislators to ask why the state is propping up gasoline prices that are already high enough. Perhaps, too, you might want to call the folks at Burchmart to tell them what you think about their anti-consumer behavior.