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Friday, November 17, 2006

 

King Soopers and the Coercive Power of Government

Until recently, King Soopers had a program in which they offered 10¢/gallon discounts on gasoline with a $100 grocery purchase. This was a program that benefited the company, earning the loyalty of consumers; and it benefited consumers who were able to save on gas by doing their shopping at Kings.

Then a suit was filed against King Soopers, charging that the program violated "Colorado's 69-year-old 'Unfair Practices Act,' which prohibits selling a product 'below cost.'" Who do you suppose filed the suit? Angry consumers, offended by being offered unfairly cheap gas? Some well-meaning state bureaucrat attempting to stop a flagrant abuse of the law? Of course not!

Having read Mancur Olson this semester, I was not at all surprised to find out that the suit was filed by "a couple of independent gasoline dealers in Montrose spurred on by a trade group representing the state's independent petroleum marketers." They, literally, made a federal case out of it. They successfully leveraged the coercive power of government to give them an advantage in the market.

This also makes sense in the terms of Olson's theory of collective action. There were lots of consumers, myself included, that benefited from the program -- making up a large latent group. However, the lawsuit was not well publicized, at least until the judgment was made and King Soopers had to discontinue the program. Even if it had been a cause célèbre, the small savings enjoyed by consumers would not likely have been enough to motivate the group to action. The benefits of the program, while tangible and pleasant, were simply to small and diffuse to have made it worthwhile to protest or write letters to the editor about (or even to blog about!). Consumers were, as to be expected, rationally ignorant and rationally passive.

The dealers in Montrose, however, as a small group with plenty to gain, had no difficulty getting motivated. The support of the trade group was also consistent with Olson, presumably they offer legal support as one of the exclusive goods for their members, with the judgment a non-exclusive good offered to all independent dealers.

According to the Rocky Mountain News, King Soopers plans to appeal the decision. For my part, I will go back to being rationally ignorant.

Hat Tips: Knowledge Problem and Coyote Blog.

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