Are minimum markup laws still necessary to prevent big chains from using their economies of scale to drive small retailers out of business?

See These Prices Are a Steal—and in Some States, That’s Illegal:When Meijer opened two stores in Wisconsin, the state demanded it charge more for dog food by C.J. Szafir and Patrick Gleason. Mr. Szafir is executive vice president at the Wisconsin Institute for Law and Liberty. Mr. Gleason is director of state affairs at Americans for Tax Reform.

"In the 1930s, many states tried to ward off economic collapse by barring businesses from selling goods below cost. The idea was that minimum markups would soften price competition and keep companies afloat. But almost 90 years after the stock crash of Black Tuesday, these laws are just propping up Overpriced Wednesdays.

Some consumer advocates argue that minimum markups are still necessary to prevent big chains from using their economies of scale to drive small retailers out of business. This claim was debunked last year in a study by Will Flanders, research director at the Wisconsin Institute for Law and Liberty, and Ike Brannon, a fellow at the Cato Institute. After examining data from all 50 states, they concluded that there is no causal relationship between minimum-markup laws and the number of small businesses. So-called mom-and-pop retailers are doing just fine in states that do not have these laws on the books.

But minimum markups do hurt consumers, since they act as a hidden tax that disproportionately harms poor and middle-income households. Wisconsin’s markup law increases the price of back-to-school supplies, such as books, markers and crayons, by 12% to 146% compared with neighboring states, according to a study last year by the MacIver Institute, a conservative think tank.

In a free market, which thrives on price competition, there is nothing wrong with selling goods below cost. Businesses do this all the time in other states on Black Friday or during “back to school” sales. The goal might be to move inventory, minimize losses or encourage repeat customers."