Why Gas Costs So Much in Md.
Maryland motorists who suffer from sticker shock every time they fill their tanks routinely look for the cheapest fuel they can find. But they don't find much difference in prices from one station to the next -- or at least not as much difference as they found a few years ago. The reason lies in a fascinating tale of Annapolis favoritism.</br></br>The story begins with the 2000 spike in oil prices, which caused gas prices to soar. Consumers responded by avoiding traditional service stations and buying lower-priced gas from chains such as Sheetz and Wawa. The two convenience chains were expanding into Maryland at the time, and several grocery stores and shoppers clubs also were opening gas stations to attract customers. The sight of motorists queuing up at these retailers worried the owners of traditional service stations, who appealed to state lawmakers for help. Annapolis has a history of restricting price competition to protect politically connected businessmen, so their call did not go unheeded.</br></br>The result was legislation to prohibit retailers from selling gas below state-established minimum prices derived from weekly wholesale prices. The legislation also empowered the state comptroller to investigate reports of illegally cheap gas and gave the comptroller the authority to suspend or revoke the license of any retailer caught offering low prices. The legislation's supporters said the new law was necessary to prevent "predatory pricing" in which one retailer undercuts competitors to drive them out of business and then raises its prices. But I've not heard of a single instance in which Sheetz or Wawa had engaged in predatory pricing, which economists generally considered to be unworkable.</br></br>Sheetz and Wawa fought the legislation, but in vain. It passed both houses of the legislature by overwhelming margins and was signed into law by Gov. Parris N. Glendening on May 18, 2001. The following September, Comptroller William Donald Schaefer sent letters to the editors of several Maryland newspapers proclaiming the legislation to be "good for the consumer" and assuring motorists that the new law would not cause gas price increases. When the law went into effect that October, Sheetz and Wawa promptly raised their prices.</br></br>What would Maryland gasoline prices be like if the minimum-price law were lifted? A loophole in the law gives an indication. A gas station can lower its price below the minimum "in good faith to meet competition." If Sheetz or Wawa tried to lower its prices to draw customers away from a nearby service station, that would not be legal competition, and the owner of a competing station could call the comptroller's office. But what if a Sheetz store were near a Wawa outlet and they wanted to compete against one another instead of calling the comptroller? In St. Mary's County, this is happening. As of April 18, one Wawa was selling regular unleaded for $1.99; the nearby Sheetz was selling it for $2. In response, the Texaco and Shell stations down the road were selling gas for $2 a gallon. In contrast, the statewide average gas price that day was $2.22 for regular unleaded.