"These very simple guidelines,
You can rely upon:
You're gouging on your
You charge more than the rest.
But it's unfair competition if
You think you can charge less!
"A second point that we would make
help avoid confusion...
Don't try to charge the same amount,
You must compete. But not too much,
For if you do you see,
Then the market would be yours -
And that's Monopoly!
That is from the Incredible Bread Machine by R.W. Grant. And it seems to sum up the position of gasoline retailers given this story from Denver, where a grocery store chain was successfully sued for $1.4 million because it provided gasoline discounts to customers who bought over $100 of groceries.
Gasoline retailers can't win. One day, they're
accused of "gouging" us at the pump with outrageously high prices; the
next, they're accused of "predatory pricing," which means giving us a
deal so good it's illegal....
The effect of the $1.4 million jury verdict against Dillon Co.
means that two of its grocery chains, King Soopers and City Market,
will no longer give customers gas discounts based on grocery purchases.
Safeway wasn't a defendant but it got the message and likewise
suspended its discount program at 43 of its fuel centers. Discounts
sponsored by other supermarket or big-box chains are also expected to
The lawsuit was based on Colorado's 69-year-old "Unfair
Practices Act," which prohibits selling a product "below cost." The law
is supposed to be enforced by the attorney general's office, but the AG
hasn't brought an action for years because of the near impossibility of
proving that gas sales are below cost when so many grocery products are
But the law also permits private civil suits in which winning
plaintiffs are entitled to treble damages. The plaintiffs here were a
couple of independent gasoline dealers in Montrose spurred on by a
trade group representing the state's independent petroleum marketers....
By the way, seldom do you find a newspaper that actually understands economics when writing about an economics topic, but the Rocky Mountain News is dead on here:
The theory behind predatory pricing laws is that a large
company will sell certain products below cost in order to drive out
competitors. Once the competitors are gone, goes the hypothesis, the
big company will jack up prices to a monopoly level.
The only problem is, this never happens. New competitors always
move fast into markets where prices are unjustifiably high.
Predatory-pricing suits are generally filed by existing companies
unable or unwilling to meet competition provided by more efficient
firms. Legal restrictions on cutting prices invariably work against the
I pointed to a similar situation a while back in Maryland. Thanks to Overlawyered for the pointer.