Scott Jensen's Pro-Monopoly Gas Plan
Gas prices in Minnesota have increased from $2.84 to $4.24 a gallon over the past year in Minnesota and as the 2022 campaign season heats up, the GOP sees an opportunity. To kick off the Memorial Day weekend GOP candidate for governor Scott Jensen released his plan to reduce gas prices in Minnesota. While Jensen might be successful in leveraging high gas prices against Governor Tim Walz, his pro-monopoly proposal to allow predatory pricing could actually pave the path to higher prices.
Minnesota’s Minimum Markup
Jensen wants to repeal a state law that prohibits gasoline from being sold below cost, which is a tool (called predatory pricing) large companies use to drive smaller competitors out of business. Specifically, the law requires that retailers sell gasoline with a minimum markup of either six percent or eight cents per gallon (which ever is lower) above the average wholesale price for the day, plus applicable state and federal taxes. The law was passed in 2001 as large retailers like Walmart were aggressively building gas stations with the goal of using cheap gas as a way to drive customers into their stores.
That the law was passed with strong bipartisan support and signed into law by Governor Jesse Ventura is a bit surprising given that just six years earlier legislators had repealed a minimum markup requirement that applied to all retail sales in Minnesota. It is clear from committee testimony and floor debates that lawmakers were focused on protecting small gas stations from anticompetitive conduct.
The House sponsor, Rep. Greg Davids (R – Preston) expressed concern in a committee hearing that large retailers would put small gas stations out of business in rural communities saying, “This would go a long way to ensure these businesses stay open.” Over in the Senate, during floor debate, the bill’s sponsor, Steve Murphy (DFL – Red Wing) said the measure would prevent large retailers from amassing monopoly power. Rep. Bill Haas (R – Champlin) probably best summarized the situation during floor debate in the House by saying, “In the long run…small competition is eliminated and we have the big guys who can set the price for gasoline.”
Walmart’s Predatory History
There is a reason that Walmart lead a multistate lobbying blitz in the early 2000s against laws like the one Jensen wants to repeal, predatory pricing has been a key part of their monopolistic rise. In 1993 an Arkansas judge found Walmart guilty of predatory pricing intended to drive local pharmacists out of business and in 2001 the company reached a settlement with the Wisconsin Department of Agriculture, Trade, and Consumer Protection for selling staple goods like butter, milk and laundry detergent below cost in certain markets where they had competition.
Today Walmart dominates the grocery market in the United States, accounting for over a quarter of grocery sales in the country according to a 2019 report by the Institute for Local Self-Reliance (ILSR). That same ILSR report found that Walmart captures 50 percent or more of grocery sales in 203 places – 43 metropolitan areas and 160 smaller “micropolitan” markets. In Minnesota this includes Alexandria, Hutchinson, Marshall and the Grand Forks, ND metro area. In these places the retail market is not governed by democratic forces, it is controlled by the Walton family.
By passing a minimum markup provision, Minnesota lawmakers were hoping to help prevent local gas stations of going the way of a variety of other independent businesses that had been gobbled up or destroyed by concentrated corporate power. The 2001 law was a rare rebuke to the pro-monopoly ideology dominant at the time and still plenty prevalent today. For example, Wisconsin Governor Tony Evers has also proposed doing away with his state’s minimum markup requirement for gasoline.
Does it Work?
While lawmaker’s intent is one thing, there is still the question of whether the below cost sales law has worked. The companies targeted by the law would suggest lawmakers at least had the right concern about large retail chains. The first fines assessed by the Minnesota Department of Commerce under the law were against several Walmart gas stations around the state. More recently a 2015 gas price war in Mankato between a Sam’s Club and a newly opened Fleet Farm prompted fines.
Beyond that anecdotal evidence, there are two studies, one in 2004 from the University of Wisconsin-Whitewater and another in 2013 in the Journal of Public Policy & Marketing, that found below cost gasoline prohibitions are successful in protecting competition and lowering prices. The 2013 study found that below cost laws increase the number of sellers in a state and drive down retail as well as wholesale gasoline prices. For all the pain of gas prices in Minnesota this year, the state still has the 9th lowest average prices in the country according to AAA.
That is in contrast to a favorite boogeyman of Minnesota conservatives, California, which has by far the highest gas prices in the country. While environmental restrictions and taxes are often identified as the culprit of the Golden State’s high prices, the California Attorney General issued a report in 2000 that pointed to market concentration among refiners and gas stations as a leading cause.
Nationally, gas retailers are becoming highly concentrated. Just last year 7-Eleven acquired Marathon Petroleum’s Speedway stores, combining the second and third largest convenience store chains into a behemoth that has over 2,500 more retail locations than the next closest competitor, Circle-K. This is on top of a consolidated oil and gas industry that has been pressured by Wall Street to slash capital expenditures, leading to the slow ramp up in production that first sent gas prices skyrocketing prior to Russia’s invasion of Ukraine.
If Scott Jensen wants to lower gas prices, he should take on monopolists. He could pressure his former colleagues in the Minnesota Senate to join the House and pass a price-gouging statute or he could advocate for the antitrust reforms the House heard this spring. Jensen talks often about the dangers of Big Tech and Big Pharma, but right now his pro-monopoly plan has us on the road to fewer small businesses and higher gas prices.