Minnesota goes after service stations for charging too little for gas

[Tiassa]

Yes, really. You did not read that incorrectly. It almost makes sense, and is just a peculiar quirk of the times:

Under Gov. Jesse Ventura, the state adopted a law in 2001 that prohibits gas stations from selling gas without taking a minimum profit. These days, they must charge at least 8 cents per gallon, plus taxes, more than they paid for it.

On Friday, the Commerce Department announced a $70,000 fine against Arkansas-based Murphy Oil for breaking the law at its 10 stations in the state, based at Wal-Mart stores and elsewhere. They also fined Kwik Trip Inc. $5,000 for violations at one station in Apple Valley.

The two are the first fines levied under the law, which is similar to minimum-price laws in about a dozen states. Another two dozen have broader laws banning predatory pricing. (AP/Yahoo)

So much for the price wars. Should a business be allowed to take the risk of cutting or eliminating its profit margin for any particular reason? I mean, given the other things companies can do to themselves, I don't see how pissing away profits on a price war for gasoline sales is really so bad. Especially at a time like this.
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• Howe, Patrick. "Minn. Cracks Down on Underpriced Gasoline." Associated Press. May 28, 2004. See http://news.yahoo.com/news?tmpl=story&u=/ap/20040528/ap_on_fe_st/gas_too_cheap_1

 

[SpyMoose]

They are required by law to price for at least an 8 cent profit per gallon? What kind of law is that. I must not understand buisness.

 

[laughing weasel]

The law is designed to prevent large corporations from selling a product so cheaply that they wipe out the local companies and then sell the product at a higher price over the long run. If it is a reasonable price then the law makes sense in the long term.

 

[Nasor]

Like laughing weasel said, these sorts of laws exist to prevent what's known as 'product dumping,' which is what economists call it when a company sells products at a loss in order to drive competition out of business – or, more commonly, drive the competition to the brink of bankruptcy and then buy the competing corporations for much less than they're worth.

This was a favorite strategy of large electronics companies in the 1970s and 80s until the government clamped down on it.