Cheap Gas

As I said, I love Cowboys gasoline. It and a few other convenience store chains - like Racetrac and Murphy Oil - sell gasoline at prices well below their major competitors. It's a great feeling to see all the pumps at Cowboys being used while those at the Shell station down the street are empty.

But, it is likely that Cowboys, Racetrac, and Murphy would sell gasoline at even lower prices if the state government would mind its own business and let the free market work its magic.

A law on the books in Alabama called the Motor Fuel Marketing Act forbids retailers from selling gasoline below cost. The law was passed in 1984 to protect smaller gas stations from unfair competition by large oil companies. From the looks of things, it didn't do a very good job of that. Try finding a "mom-and-pop" gas station sometime. They are few and far between.

Not only did it fail at its intended purpose, the law also interferes with market competition, likely keeping gas prices a few cents higher than they would be otherwise. There was a failed attempt to repeal the law in the last legislative session, and the Federal Trade Commission even weighed in on the matter, saying:

• Low prices benefit consumers. Consumers are harmed only if below-cost prices allow a dominant competitor to raise prices later to supracompetitive levels.

• Economic studies, legal studies, and court decisions indicate that below-cost pricing that leads to monopoly occurs infrequently. Below-cost sales of motor fuel that lead to monopoly are especially unlikely.

• The federal antitrust laws deal with below-cost pricing that has a "dangerous probability" or a "reasonable prospect" of leading to monopoly. The FTC, the Department of Justice's Antitrust Division, state attorneys general, and private parties can bring suit under the federal antitrust laws against anticompetitive below-cost pricing and price discrimination. The Act, however, does more than duplicate these protections; it exceeds them in ways that do not benefit consumers. Federal law prohibits pricing that could harm competition and consumers, not just competitors, whereas the Act prohibits pricing that could harm competitors even if there is no harm to consumers.

• Current Alabama law discourages competitive pricing. The Act subjects vendors to civil liability - including treble damages and a $10,000 fine per violation - for cutting prices even if there is no likelihood of harm to market-wide competition. Further, by focusing on total unit costs rather than marginal costs, the Act subjects a greater range of prices to liability in comparison to federal antitrust law. As a result, many vendors likely avoid procompetitive price-cutting.
  
  For these reasons, we believe that the Act likely harms consumers and restricts competition. Moreover, the Act is unnecessary because the federal antitrust laws already protect against anticompetitive predatory pricing and price discrimination.

Nevertheless, the bill failed under opposition from trade organizations representing convenience stores and petroleum marketers. As a result, low-price gasoline retailers have to be careful in their pricing schemes in order to avoid possible lawsuits from competitors, and consumers end up paying more for gasoline.