A Michigan-based supermarket trying to expand into Wisconsin has come up against an absurd law against selling products at “unfairly low” prices. As reported by MLive, the Meijer grocery store chain is facing complaints that its grand opening sales violated Wisconsin law for offering products at prices below cost. Why is that bad?
The practice of selling certain items of merchandise below cost in order to attract patronage is generally a form of deceptive advertising and an unfair method of competition in commerce. Such practice causes commercial dislocations, misleads the consumer, works back against the farmer, directly burdens and obstructs commerce, and diverts business from dealers who maintain a fair price policy. Bankruptcies among merchants who fail because of the competition of those who use such methods result in unemployment, disruption of leases, and nonpayment of taxes and loans, and contribute to an inevitable train of undesirable consequences, including economic depression.
Some of these are simply a consequence of any market competition, a process that inevitably results in some companies failing. But the idea that there is something uniquely harmful called “unfair competition” that occurs once a product is sold below cost is just false. There are many reasons companies sell certain products at certain times for less than the cost of production. For example, grand opening sales and seasonal sales are ordinary forms of competition. It’s common in many retail sectors to use a low-priced “loss leader” product to draw customers into your store hoping they will buy other high-priced items as well.
In short, the existence of regular below-cost sales is in fact a sign of a healthy, competitive market that serves consumers and suppliers.
It’s tempting to see Wisconsin’s law as a relic of the New Deal era’s now widely discredited interventionist economics. But this sort of rhetoric is still quite common among people who want the government to prevent their competitors from being too competitive.
The head of the Wisconsin Grocer’s Association warns that without the law, competition would (paradoxically) lead to monopoly.
“You would have massive, massive disruption in the marketplace… . You would have competitors trying to meet those prices and you would have others who simply could not do it.”
While state laws like Wisconsin’s Unfair Sales Act are relatively rare, the federal government relies on the same bad economics to justify the U.S. antidumping law, which imposes punitive tariffs on imports sold below “fair value.” And just like the Wisconsin Grocer’s Association, the beneficiaries of antidumping tariffs claim such protections are needed to ensure a competitive market.
The entire institution of antidumping is based on bad economies and crony politics. It keeps prices high for consumers and businesses while frustrating U.S. foreign relations. I urge you to take a look at some of the extensive work Cato scholars have done and continue to do to address the myths that keep the protectionist U.S. antidumping law alive.