Review of Industrial Organization 14: 189–204, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.
Antitrust and Sales-Below-Cost Laws: The Case of
ROD W. ANDERSON
W.E. Upjohn Institute, Kalamazoo, MI 49007, U.S.A.
RONALD N. JOHNSON
Department of Agricultural Economics and Economics, Montana State University-Bozeman, P.O.
Box 172920, Bozeman, MT 59717-2920, U.S.A.
Abstract. Numerous states have sales-below-cost (SBC) laws, often directed at speciﬁc products
such as gasoline. Potential violations of state SBC laws occur when prices are less than the seller’s
cost of doing business, or some proxy thereof. The most commonly stated purpose of these laws is to
protect small independent ﬁrms from predation by larger ﬁrms. This study offers empirical evidence
on the impact of SBC laws on the retail gasoline market. The result indicate that SBC laws directed
speciﬁcally at the retail gasoline market have resulted in higher retail margins.
Key words: Sales-below-cost, predation, gasoline.
During the 1930s, a number of states passed legislation prohibiting the sale of
goods below cost where the purpose, intent or effect of such sales was to injure
a competitor or destroy competition.
Unlike “fair trade” laws, state sales-below-
cost (SBC) laws do not explicitly establish minimum prices.
violations of SBC laws occur when prices are less than the seller’s cost of doing
business, or some proxy thereof. In addition to the laws pertaining to products
generally, a number of states have enacted SBC laws for speciﬁc goods, such as
cigarettes, milk, liquor, and petroleum products. Unlike most general SBC laws,
some of the product-speciﬁc laws are of recent origin. SBC laws that apply specif-
We thank two anonymous referees for help suggestions and Alan Parkman for guidance on the
legal discussions in the paper. All errors are, of course, the responsibility of the authors.
For a discussion of the legal history and scope of state statutory provisions prohibiting sales
below cost, see Dougherty (1985).
The Miller-Tydings Resale Price Maintenance Act of 1937 and the McGuire Act of 1951,
both repealed in 1975, gave manufacturers the right to set retail prices free of any antitrust liability
provided the states had a “fair-trade” statute. These laws were generally instituted at the behest of