A debate in the Wisconsin Legislature could affect the prices consumers see on store shelves. But while some say the proposal would result in better bargains for shoppers, others say consumers would ultimately get a bad deal.
What is the Unfair Sales Act?
The 75-year-old state law, also known as the minimum markup law, bans retailers from selling items below cost. Wisconsin is one of 16 states that have minimum markup laws with price protections for retailers, according to the National Conference of State Legislatures.
Why does it exist?
The law is based on the argument that selling goods below cost is a form of deceptive advertising, taking patronage away from retailers who keep fair prices, "ultimately resulting in lessened competition and market disruption," according to the state Department of Agriculture, Trade and Consumer Protection. It was passed in 1939, on the heels of the Great Depression, to protect small businesses from encroaching large retailers.
What products are covered by the law?
The law covers general merchandise. It also implements a mandatory markup on alcohol and tobacco products and motor vehicle fuel.
What about price matching and going-out-of-business sales?
The law does allow retailers to match a competitor's price and makes exceptions for clearance and final liquidation sales. Exceptions are also made for damaged or perishable goods, contracted governmental institution sales and items sold to charities.
What's being proposed?
State Sen. Leah Vukmir, R-Wauwatosa, and Reps. Jim Ott, R-Mequon, and Dave Murphy, R-Greenville, are proposing a repeal of the law. The push to repeal has been made several times before, but has never been successful.
What's the argument for repeal?
Supporters of repealing the law say it's anti-free market. They say the law artificially inflates prices and stifles competition, hurting shoppers' pocketbooks and retailers aiming to break into a market or expand.
In a a memo seeking cosponsors for the proposal, Vukmir, Ott and Murphy wrote that the law prevents businesses from offering below-cost discounts and keeps prices "artificially high."
"The debate over repealing the Unfair Sales Act boils down to this question: Should government prevent businesses from selling their goods at low prices?" Vukmir said in an email. "This out-of-touch law affects most goods consumers buy, including everyday needs like gasoline and groceries. In a way, this regulation is a type of tax placed on the poorest among us — those who are trying to find the best deals to stretch their families' budgets as far as they can go."
Who else supports repealing the Unfair Sales Act?
Big-box stores like Walmart say the law keeps them from offering the lowest-possible prices, and AAA says it keeps gas prices higher than they ought to be. Supporters also say the law can drive business out of Wisconsin, when consumers turn to the internet or other states to find better deals, especially in cases like Black Friday sales.
The conservative, pro-free market MacIver Institute has made the repeal one of its pet causes this fall, calling the law "outdated" and "obscure."
Who opposes the repeal?
A coalition of businesses and business groups called "Main Street Businesses for Fair Competition" is against the proposal. The coalition includes the Pharmacy Society of Wisconsin, Tavern League of Wisconsin, Wisconsin Beer Distributors Association, Wisconsin Restaurant Association, Kwik Trip and the Cooperative Network, among others.
What's the argument for keeping the law on the books?
The groups who favor the law say it maintains a fair market that allows small businesses to thrive, calling the proposal to repeal it an attempt to "create a problem that doesn't exist."
"You have to understand, because these laws have been in place since 1939, every business plan and pricing strategy has been predicated on this law. This is what retailers have used to determine how to price their products," said Brandon Scholz, president and CEO of the Wisconsin Grocers Association. "If you eliminated this law, you would have price wars in this state … in which some retailers would lower their prices way below their costs in an effort to knock out their competition."
The problem with that, Scholz said, is that once the competition is eliminated, a retailer can't maintain those low prices, because to do so, wholesalers and suppliers would have to lower their prices as well.
A position paper from the Wisconsin Petroleum Marketers & Convenience Store Association argues "the ability of larger companies to sell motor fuel below cost threatens the viability of independent and family-owned businesses as competition is eliminated."
Who benefits from a repeal?
Supporters say it would benefit both consumers and retailers seeking to expand or enter a market. Opponents say it would benefit large retailers who can afford to sell below cost for an extended period of time.
Is there an example of how the law works playing out right now?
You bet there is. Enter Meijer, a Michigan-based grocery store chain that recently opened several stores in Wisconsin. Several complaints have been filed against Meijer for allegedly violating the Unfair Sales Act, including one made by the president of Woodman's, another grocery chain.