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Thread: equivalent of 'minimum wage' law raises gas prices ...

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    Banned Melonie's Avatar
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    Default equivalent of 'minimum wage' law raises gas prices ...

    (snip}"A debate also exists over the impact of laws governing minimum gas prices. In Maryland, independent operators stand on one side of the issue, with the FTC, the AAA auto club and big chains on the other.

    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. With the assistance of an Annapolis lobbyist, Bruce C. Bereano, the Bowie association argued to lawmakers that the law would benefit consumers in the long term.

    "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."

    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."

    Several economics professors were unable point to any definitive research showing that the law would ultimately hurt or benefit consumers.

    R. Michael Cortez, vice president and general counsel for Sheetz, said the Altoona, Pa., retailer would like to sell below cost on occasion but not for extended periods. He compared a brief drop in gas prices to a sale held at a clothing store designed to draw in new customers.

    He said the Maryland law dampens competition. "It forces companies to increase the price artificially, and it forces companies to become price followers and not price leaders," Cortez said. "All of that results in increasing gas prices."(snip)

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    This Maryland law comes from the same school of thought as 'minimum wage' laws, in that it is 'theoretically' supposed to provide independent mom & pop gas stations with a guaranteed ability to earn a 'living wage'. However, this comes at the expense of every other Maryland business and individual who must buy gasoline, who are forced to pay higher than necessary prices at the pump to fund this de-facto gov't subsidy. It also preserves a system of distribution which is racked with low volume inefficiencies, and passes the extra costs of those inefficiencies along to Maryland gasoline buyers.

    In reality, a large number of Maryland individuals and Maryland business vehicles will be crossing the Virginia and DC state lines to fill up for less. This of course has the unintended consequence of costing the state of Maryland a significant amount of lost gasoline tax revenue, costing the Maryland mom & pop gas stations lost sales volume, and fertilizing the idea in the minds of some 'middle class' Maryland residents and non mom & pop gas station business owners that perhaps they should investigate moving to Virginia !

    IMHO this is yet one more example that heavy gov't regulation of businesses, and the increased costs of those heavy regulations, can only work in the long term if the government is able to keep 'foreign' suppliers out and to keep 'domestic' customers in ! It is arguable if this is even possible on a national level. It is certainly NOT possible on a state level.
    Last edited by Melonie; 05-07-2005 at 05:32 AM.

  2. #2
    Jay Zeno
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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    I don't care much for price controls in a competitive market. Draw all the analogies to minimum wage that you want. Minimum wage is a safety net, while price controls in a competitive arena are a shark-filled moat.

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    Banned Melonie's Avatar
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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    I fail to see how this law doesn't also create a very similar 'safety net' for mom & pop gas stations, a 'safety net' funded in exactly the same way i.e. passing along higher than necessary prices to consumers ! The only significant difference is that the Maryland law specifically regulates the retail price of gasoline, where minimum wage laws don't specifically regulate minimum retail prices - but force them to be increased nonetheless to cover the cost differential between minimum wage rates vs actual market wage rates.

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    Featured Member discretedancer's Avatar
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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    They are different...though "Higher than necessary" presumes that selling products below cost (which large chains can afford to do but mom/pop stores cannot) is truly sustainable as a business practice.

    Setting a rule that says "no selling below cost for more than X days per month" seems to allow for promotions and protects the "cost" as the stndard bechmark for gas price. Given that wholesale cost can be around $65c per gallon..that aint bad!

    It's a touchy issue...just as pubs in PA must sell beer for a minimum price (cannot give it away) because of Liquor Control Board rules...no promotions allowed.

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    Banned Melonie's Avatar
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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    If you read the whole article you'll find that another section of Maryland law outlaws 'vertically integrated' gasoline suppliers, which would allow huge volume lower cost refining, distribution and sales of that gasoline by the same company. Under the Maryland law all gas stations must be low volume independently owned operations which must rely on a 'middleman' gasoline distributor for supply, both of which add significant costs to the system which must be picked up by the customer (but which guarantee the financial survival of the 'middlemen' and the mom & pop independent owners).

    The flaw here is the true definition of 'cost'. Maryland defines it as the average wholesale price charged by the 'middlemen' gasoline distributors for gasoline they purchase in bulk from refiners, mark up, and then deliver to mom & pop gas stations by a unionized trucking operation (i.e. $2.04 per gallon per the article). Sam's Club would define it as the actual price paid to purchase gasoline by the tankerload from a refiner and truck it to their gas stations' underground storage tanks themselves (i.e. per the article they were still making a profit selling at $1.99 per gallon, indicating that their actual 'cost' is even lower). If not prohibited to operate this way under Maryland law, ExxonMobil would define it as their cost of pumping/importing crude oil, refining it, distributing it, and delivering it to their own gas stations using their own truck fleet (which, logically, would be even lower than Sam's Club's cost).

    Thus the whole argument made by the one academic in the article that Sam's Club was selling $1.99 gasoline 'below cost' as a promotional tool and arguably losing money in the process is bull$#it. Sam's Club's 'costs' are at least 6 cents per gallon lower due to bulk purchasing power, eliminating the 'middleman' distributor, and a more efficient (and non-union) trucking operation. Thus the Maryland law amounts to nothing more than a 3% hidden tax on gasoline with the express purpose of subsidizing the continued existance of 'middlemen', unionized trucking of gasoline to mom & pop gas stations, and the mom & pop gas stations themselves.

    IMHO 'minimum wage' laws cause exactly the same upward distortions in the definition of 'cost', by forcing employers to pay for a cost component which is not justified or truly necessary.
    ~
    Last edited by Melonie; 05-07-2005 at 06:17 AM.

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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    Why the hell should this example of asshattery by public officials surprise anyone? They do the same thing for sugar, wheat, soybeans, cotton, peanuts, milk (big time), banning self-service gasoline in NJ, making person-person ticket sales illegal etc ad nausium. It is illegal to have milk on sale in Mass.I hate to suggest a hint at hypocrisy among the dancers at SC's but it is comparable to dance prices being set at $x/dance with no negotiating. Since dancers cannot compete on price, they compete by offering "extras". Not quite worth $30 a dance relative to another dancer, give a little more.

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    Banned Melonie's Avatar
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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    I hate to suggest a hint at hypocrisy among the dancers at SC's but it is comparable to dance prices being set at $x/dance with no negotiating. Since dancers cannot compete on price, they compete by offering "extras". Not quite worth $30 a dance relative to another dancer, give a little more.
    This is an interesting analogy in other ways as well, Monty. For example, in a dance club environment where prices are fixed and where law enforcement truly does not allow any girls to 'sweeten' the deal, a similar end result usually occurs to that of entry level applicants for minimum wage jobs. A handful of hot looking girls will actually be able to make money, and a majority of average looking girls will not.

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    Featured Member GnBeret's Avatar
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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    Quote Originally Posted by discretedancer
    Given that wholesale cost can be around $65c per gallon...
    Where?!? Refiners can generally deliver a gallon of gas for approximately 50% - 60% of the price you're paying at the pump, with taxes, distribution costs, and distributor/retailer profit accounting for the balance. At the present time, both the spot and futures markets are running between $1.40 - $1.60 per gallon for bulk (wholesale) purchases of regular gasoline.
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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    My opinion probably wrong but hey I am not a politician it seems that gas stations in general have not made money on their gasoline sales in many years the main objective for them is retail sales get you in the store and buy something after you fill up . So as I am understanding this whole thread the spread for all will be equal thus making it more competative for the retail end ?

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    Featured Member discretedancer's Avatar
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    Default Re: equivalent of 'minimum wage' law raises gas prices ...

    Sorry...the 60c number was from my BioDiesel research...and related to wholesale cost (in certain cases) for BD as low as 60c...usually closer to $1.00-

    got confused. 1.33 to 1.89 is wholesale out this way...

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