Bill to end ‘item pricing’ introduced in Michigan

January 27, 2011The Associated Press

http://www.bloomberg.com/news/2011-01-27/bill-to-end-item-pricing-introduced-in-michigan.html

The LatestThe Latest

• In his State of the State address, Governor Rick Snyder proposed repealing Michigan’s law requiring price tags on most retail items

• A week later, the legislation to repeal was introduced by Republican Rep. Lisa Posthumus Lyons of Alto

• The Michigan Retailers Association says the law is a hidden tax on consumers, and results in higher prices in stores

• The United Food and Commercial Workers union argues that jobs would be lost in grocery stores if the law were to be repealed

Outmoded Consumer Protection: The

Incompatibility of Item Pricing Laws and Radio Frequency Identification

October 12, 2010By David Wyld, Southeastern

Louisiana University

http://www.bukisa.com/articles/372597_outmoded-consumer-protection-the-incompatibility-of-item-pricing-laws-and-radio-frequency-identification

Why are there IPLs?Why are there IPLs?

• Item pricing laws were enacted the 1970’s and 80’s to protect consumers from being overcharged due to scanning errors

• IPLs are supported by consumer advocates, and now by workers’ unions, who believe that the repeal would threaten jobs

• IPLs currently exist in ten US states; Michigan’s, which includes non-food items, is one of the most stringent.

Arguments AgainstArguments Against

• Retailers argue that the costs of compliance, and high fines for non-compliance, translate to increased costs for the consumer – a hidden tax.

• Researchers found that prices in markets subject to IPLs were between 20-25 cents higher than prices for similar items in other markets

• IPLs impede large retailers’ abilities to change prices.

• There are further advances in item-pricing, like Radio Frequency Identification, that current Michigan law makes impossible to utilize.

Effects of IPLs?

Price ($)

Quantity

Demand Supply, original

• With the increased costs associated with IPLs, supply has decreased, leading to higher prices and lower quantities.

Supply, with tax

P*

Q*

• The Governor believes that repealing Michigan’s IPL will not only get us back to the original supply levels, but give retailers a chance to use better technology.

P w/ tax

Q w/ tax

Supply, better technology

P w/ tech

Q w/ tech

Assumption: Tax Burden

Price ($)

Quantity

Demand Supply, original

P*

Q*

• But does the tax burden really fall on the consumer?• That depends on the elasticity of demand and supply curves; different kinds of goods have different curves.

Supply, with tax

P w/ tax

Q w/ tax

TaxProducer incidence

Consumer incidence

•When the demand and supply curves have similar elasticities, the burden is shared.

Tax Burden

Price ($)

Quantity

Demand

Supply, original

P*

Q*

Supply, with tax

P w/ tax

Q w/ tax

TaxProducer incidence

Consumer incidence

most of the burden goes to the producer.

• When the demand curve is elastic and supply is inelastic,