Do state motor fuel sales-below-cost laws lower prices?

Abstract

In recent years a number of US states have imposed sales-below-cost (SBC) laws directed at motor fuel markets. We use panel data over the 1983–2002 period to evaluate the effects of newly imposed motor fuel SBC laws on retail and wholesale gasoline prices, their mark-up, and the structure of motor fuel markets. A unique feature of our analysis is that we utilize transitions in those states that adopted new SBC legislation to evaluate the effects of the laws. Perhaps surprisingly, we find that gasoline prices are about one cent lower five years after the law is imposed. We also find that total number of gasoline outlets is greater in the presence of the law.