Wisconsin’s minimum markup law is particularly egregious when Wisconsinites are suffering
By Ike Brannon for the Badger Institute
Given that the recent COVID-19 crisis has significantly reduced many people’s income and is increasing the demand for prescription drugs, now would be a good time to reverse the antiquated laws that keep prices in Wisconsin higher than they need to be.
The so-called Unfair Sales Act precludes retailers from selling items below cost. The ostensible fear is that, without the law, a big retailer could drive prices so low that its smaller rivals would be driven to bankruptcy, achieve some modicum of monopoly power and then raise prices.
In the real world, we rarely see this behavior because it is relatively easy for new competitors to enter a market if they see an incumbent standing alone and earning fat profits.
It’s bad enough that this unnecessary law makes Badger State residents pay more for gasoline (which must be marked up by 9%) than in neighboring states. An even bigger concern, given our health care and economic crisis, is that the Unfair Sales Act increases drug prices.
Here’s an example of how the law penalizes consumers: In 2006 Walmart began selling a vast array of generic prescription drugs used to treat everything from high cholesterol to diabetes to heart issues – for just $4 for a 30-day supply and $10 for a 90-day supply.
The retailer surmised that while some of these prices may have been a little below their cost, charging a uniform low price across such a wide array of drugs would encourage shoppers to get all of their prescriptions at Walmart – and make other purchases at the same time. It was a great deal for consumers, and the other large pharmacies like Costco, Walgreens and Kroger eventually followed suit with similar pricing programs.
However, because some of the generic drugs on Walmart’s list cost Walmart more than $4 – and violated the state’s Unfair Sales Act – Wisconsin prevented Walmart from offering the deal. In the name of protecting Wisconsin’s consumers, Walmart was forced to charge a higher price here than in other states.
The fact that this discounting program has lasted a decade and a half elsewhere belies any notion that Walmart’s low prices will drive its competitors out of business; besides, these days its biggest competition comes from the Internet. If this is predatory pricing designed to drive competitors out of business then Walmart is really, really bad at it.
Wisconsinites with underlying health issues and thin wallets are particularly vulnerable right now. If Wisconsin politicians want to lower prescription drug prices, they should ditch this anti-consumer law posthaste.
Ike Brannon is president of the consulting firm Capital Policy Analytics and a Badger Institute visiting fellow.