Michigan Consumers Will Lose if the Legislature Fixes Gas Prices

Ed Weglarz is executive director of the Service Station Dealers Association of Michigan, and the owner of 10 service stations in Michigan. According to Weglarz, he and his associates are facing a "David and Goliath" scenario that requires immediate assistance from the Michigan Legislature.

Who is the evil Philistine giant service station owners are facing? Everyone’s favorite retail ogre, of course: Wal-Mart. Mr. Weglarz and his friends have gotten Sen. Mark Schauer, D-Battle Creek and Rep. Charles LaSata, R-St. Joseph, to sponsor a bill that would prohibit gas stations from selling gasoline above or below a certain price range established by the state, subject to civil fines of up to $25,000 per day. The idea is to prevent large retail chain stores like Wal-Mart and Sam’s Club from engaging in "predatory pricing" and to ensure competition by saving local mom-and-pop operators.

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"I’m tired of putting money into my business rather than taking it out," Mr. Weglarz told the Senate Committee on Labor and Commerce in January. "This is a David-Goliath scenario, and we need you to give David a hand."

I always enjoy a good Biblical metaphor, but this one doesn’t make sense. Unless I’ve misread my Bible, Goliath didn’t become a fearsome giant by selling the Israelites what they wanted at lower and lower prices. He terrorized the Israelites by force. And while I don’t know Mr. Weglarz personally, I don’t think gas station owners can credibly claim to be the righteous warriors who stand between auto owners and the terror of high gasoline prices.

In fact, Mr. Weglarz is presently trying to stand between Michigan drivers and what could amount to $200 million in gasoline savings.

In this case, we are asked to support the idea of gasoline price fixing based on the economic equivalent of the "urban legend" — predatory pricing. Under the proposed bipartisan bill, the state Legislature will decide a price range within which gasoline can be sold in the state of Michigan. The real goal is to keep prices from falling to where consumers would prefer them to go. These higher prices now will supposedly save us from higher prices in the future. That makes about as much sense as having the state Legislature in the business of managing service stations.

Haven’t we learned by now that government is dreadfully inefficient at managing prices, or any other aspect of business? If the appeal is to "fairness" rather than efficiency, government certainly shouldn’t give marching orders to an entire segment of retailers based on the conspiratorial visions of a few squeaky wheels. The best judge of efficiency and fairness in the service station industry, as in other industries, is the consumer. But Mr. Weglarz and his associates do not trust the consumer to make those decisions. He is asking us to believe that it is in our interest to save Michigan’s service station owners from the toils of competition. Those would be the same toils that translate into consumer savings in every other segment of Michigan’s economy.

"Predatory pricing" is one of those "can’t prove it, can’t disprove it" terms, which makes it convenient for tossing around by lobbyists and their allies in government. While some ivory tower academics may persuade their students that pricing conspiracies are a recurring threat in a free market, average consumers scratch their heads at the notion. The fact is that one would be hard pressed to find credible examples of consumer prices that, when adjusted for inflation, taxation, and regulatory costs (all government-imposed), actually rose due to the dynamic changes in retailing over the past 20 years. The fact is that falling prices, with greater access to goods, has been the norm because of these new retailers. And should these large retailers ever come to achieve the cartoonish world domination predicted by their opponents, they would remain vulnerable to the same dynamic market forces that enabled them to gain that market share in the first place. (For more information on the myth of predatory price cutting, see "Remembering a Classic That Demolished a Myth: Revisiting Standard Oil and ‘Predatory Pricing,’" by Lawrence Reed at http://www.mackinac.org/3884 and "Herbert Dow the Monopoly Breaker" by Burton Folsom at http://www.mackinac.org/31.)

One demonstration of the dynamic nature of the market is the fact that the name "service station" hardly applies to most service stations anymore. Gone are the quaint days of "service" at many stations. Forget mechanical repairs, getting your oil checked, or your fluids topped off. Most "service" stations are simply a place to buy gasoline and a few snacks. Consumers asked for these changes long before Wal-Mart ever existed. They voted with their dollars. Markets, acting on the demands of consumers, have been transforming service stations for some time. In Michigan, Meijer has been selling gasoline for years. Before that, most people probably never thought about buying their gasoline and their groceries in the same place.

Consider too that most people also don’t see the need to get automotive service where they buy their gas, either. Like most industries, we don’t recognize service stations even based on what they looked like 20 years ago. Perhaps this would be a different discussion if the old-style Norman Rockwell-era gas stations were still around. Who doesn’t admire the old gas station as community cracker barrel idea? Some things just can’t be replaced by lower prices.

But I doubt that Mr. Weglarz has opened his stations to provide customers with a Mayberry experience. Forget the "mom and pop" romance. He is probably in business to increase his family’s prosperity. And like most retail customers, I shop where I can save my family money. I wish Mr. Weglarz well in organizing his business to offer me the best overall value. My guess is that he doesn’t need Lansing’s help.


Glenn A. Moots is assistant professor of economics at Northwood University in Midland, Mich., and an adjunct scholar with the Mackinac Center for Public Policy, a research and educational institute, also in Midland.