'Predatory pricing' an outdated concept

New legislature should junk 1930s law

Published November 13, 2006 at midnight

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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.

We happen to think "predatory pricing" is a wonderful antidote to soaring costs and regret a recent verdict in a Denver federal court that punishes the practice.

Not that the court had any choice but to take the case seriously given a wrongheaded law passed by the Colorado legislature in 1937.

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 end.

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 also involved.

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.

It's not a federal issue, of course, but the plaintiffs filed in federal court because Dillon is based in another state. The $1.4 million was awarded by a jury apparently in part because the judge ruled that despite the wording of the statute, the jury shouldn't consider the cost of other items making the gasoline discount possible, only the cost of the gas itself. Dillon plans an appeal.

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 consumer.

If the Democrats, who now control the governor's office as well as both chambers of the legislature, really want to help consumers by driving down prices, they would move to repeal the Unfair Practices Act.

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