We could be paying less for gas

A year ago, gasoline retailers in Alabama were fending off accusations of "price-gouging" following the supply disruptions associated with Hurricanes Katrina and Rita. Now, one convenience store chain has filed a federal lawsuit alleging that a competitor is charging customers too little for filling up at the pump:

(B'ham News) Retailing giant Costco is facing a lawsuit from Alabama convenience stores that say the warehouse club is selling gasoline at unlawful prices.

The Pantry Inc., the North Carolina company that operates the Kangaroo Express convenience store chain, filed its suit in U.S. District Court in Birmingham last week.

The chain is seeking an injunction requiring Costco to comply with the Alabama Motor Fuel Marketing Act, which makes it illegal to sell gasoline to the public for less than it costs to buy it, truck it to a retail outlet and pay the costs associated with operating a store or gas station. ...

Dean Mooty, the Montgomery lawyer representing The Pantry, said big retailers such as Costco use low gas prices to lure customers, hoping they will lay out cash for big ticket items such as refrigerators. By comparison, he said convenience stores must make a profit on gas sales to remain in business.

"They use gasoline in the truest sense as a loss leader," Mooty said, speaking of chains such as Wal-Mart and Costco.

And that's a bad thing why?

Well, it's bad in the eyes of the law because Alabama's Motor Fuel Marketing Act says that it is. Back in 1984, the legislature enacted that law ostensibly to help "mom-and-pop" convenience stores compete against the predatory pricing of their larger competitors. Today, mom-and-pop stores are few and far between, and big-name chains like Kangaroo (owned by The Pantry, Inc.) are now using the law to fend off unwanted competition from other chains whose business model differs from their own.

The Federal Trade Commission commented on the AMFMA back in 2004, when an effort was under way in the legislature to repeal it. In a letter to Rep. Demetrius Newton, the FTC concluded that:

...the staffs of the FTC's Bureau of Competition, Bureau of Economics, and Office of Policy Planning believe that the Alabama Motor Fuels Marketing Act harms competition. The Act addresses a problem that is unlikely to occur. To the extent that anticompetitive below-cost pricing and price discrimination are dangers in the retail gasoline market, federal antitrust laws are sufficient to address the problem. Moreover, we believe that the Act most likely deters procompetitive price-cutting and causes some vendors to raise their prices, to the detriment of Alabama's consumers.

In spite of the FTC's conclusions, which are supported both by common sense and empirical evidence, the bill to repeal the AMFMA failed, and Alabama's consumers are still paying the price.

You can read my previous posts on this topic (from December 2004 and May 2005) here and here.