Do State Motor Fuel Sales - Below - Cost Laws Lower Prices ? 1 ( published in Journal of Urban Economics , January 2005 )

In recent years a number of U.S. 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. a Department of Economics, University of Wisconsin-Whitewater, Carlson Hall, 800 W. Main Street, Whitewater, WI 53190, E-mail: [email protected] b Department of Marketing, University of Wisconsin-Whitewater, Carlson Hall, 800 W. Main Street, Whitewater, WI 53190, E-mail: [email protected] c Andrew Young School of Policy Studies, Georgia State University, University Plaza, Atlanta, GA 30303-3083, E-mail: [email protected] JEL Classification: H1, K2, L4 1 We thank Ronald Johnson, Justine Hastings and seminar participants at the University of WisconsinMilwaukee for helpful comments and suggestions. We also thank Varut Chimtawan and Sang Eun Lee for capable research assistance. We are grateful to two anonymous referees and to Jan Brueckner for many helpful comments. Any errors are ours.