Thursday, May 17, 2007

Sure, You Can Break Up AT&T, But Why Can't Wisconsin Be Sued for Treble Damages?

So called "free-market conservatives" love to trash the federal antitrust regime claiming that it is an artificial governmental intrusion into private enterprise. These people are dumb.

No, it's not their fault. 99.99999999999999% of the population of this great nation haven't the first clue how the Sherman and Clayton Acts (hereafter referred to as the "Sherton Acts") work, and that number includes 100% of appellate-level and higher federal judges not named "Posner" or "Easterbrook." What we are forced to deal with is two nearly century old laws that the federal courts still have not figured out how to apply in any consistent way.

But that's OK. I mean, every other year you get a new "watershed" abortion case, but can you name the last big antitrust decision?

It was in the 2005 term and involved the automaker Volvo and a couple of its dealerships. I for one can't figure out how the Strib Editorial Board missed the chance to pillory the court for abandoning the per se rule on price discrimination.

Ha ha! A little antitrust irony humor there. Back to the point.

What the Sherton acts try to accomplish is to ensure markets operate as purely competetively as possible. While government can - and often does, as we will see - harm competition, free marketeers must also recognize that market participants can also harm competition (cartelization, price fixing, predatory pricing and bid rigging leap immediately to mind). So while the Sherton Acts are rightfully labeled as "consumer protection" laws - frequently uttered as a slander by the free-market conservatives - the mechanism it employs to protect consumers is to mandate, not hinder, competition on the merits. Competition leads to trends toward marginal-cost pricing within products and product markets. This increases quality and decreases price for the consumer, while simultaneously rewarding producers of good products and killing off the bad ones.

So to recap: antitrust law seeks to protect consumers by protecting competition, not competitors. Remember that. We'll be coming back to it.

And for the most part, it works. Unless, of course, your state legislature doesn't possess the faith in free markets that the drafters of the Sherton Acts did, nor indeed any good thinking conservative.

Which brings us to the sad story of Raj Bhandari:

A service station that offered discounted gas to senior citizens and people supporting youth sports has been ordered by the state to raise its prices.

Center City BP owner Raj Bhandari has been offering senior citizens a 2 cent per gallon price break and discount cards that let sports boosters pay 3 cents less per gallon.

But the state Department of Agriculture, Trade and Consumer Protection says those deals violate Wisconsin's Unfair Sales Act, which requires stations to sell gas for about 9.2 percent more than the wholesale price.

Bhandari said he received a letter from the state auditor last month saying the state would sue him if he did not raise his prices. The state could penalize him for each discounted gallon he sold, with the fine determined by a judge
.

Yeah, you read that correctly: Wisconsin imposes a price floor for gasoline.

I did some digging and discovered that the 9.2% markup figure was the legislature's definition of "at cost". Meaning that the import of the act is to prohibit below cost pricing, which is defined as 9.2% above cost.

Let me whittle it down to a basic equation so as to better let the white-hot stupidity shine through brightly. According to the Wisconsin legislature:

cost = cost + 9.2%(cost)

Well that's was easy. But it gets dumber. See, the whole point of the Wisconsin Unfair Sales Act (WUSA) is to prevent predatory pricing.

Quick definition - predatory pricing involves one company with vast resources pricing its product below marginal cost so as to drive its less well-funded competitors out of business, after which time it can use its resulting increased market power to more than recuperate the losses it incurred while using the below marginal cost price. Got that?

OK. The problem here is - and if you've paid any attention at all you can already see it coming:

PREDATORY PRICING IS ALREADY ILLEGAL UNDER THE SHERMAN ACT!!!

And I'm going to go out on a limb and take a wild guess that Wisconsin, like just about every other state, also has an anti-predatory-pricing provision of general application on the books.

So what makes gasoline so special? Dunno, but my guess is that this law was an artificial booger law - sure, we have the means to make it, and once we're done making it, we have something to show for it. But when all is said and done, it's still just a useless fake booger that needlessly grosses out serious people actually trying to contribute to the economy.

"But look - I was instrumental in the creation of the world's first artificial booger. Send me back to Madison for another term!"

The result is (and I asked you to remember this above) that WUSA, in trying to protect the consumer by protecting competition by protecting competitors, screws all three.

Now that's government efficiency!

Actually, back in 2003, the Federal Trade Commission said as much about WUSA, without the booger imagery (this is why KAR exists):

For these reasons, the FTC's Office of Policy Planning, Bureau of Competition, and Bureau of Economics believe that Wisconsin's Unfair Sales Act harms competition. The Act addresses a problem that is unlikely to occur. To the extent that anticompetitive below-cost pricing is a danger in the retail gasoline market, federal antitrust laws are sufficient to address the problem. Moreover, we believe that the Act most likely deters pro-competitive price-cutting and causes some vendors to raise their prices, to the detriment of Wisconsin's consumers.

Got that? WUSA implements all the harmful things government regulation can cause while at the same time leaving out those pesky benefits! Way to go Wisconsin! Read the whole thing. The report reads as if the good folks down at the FTC had themselves a good laugh over this law.

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