Why Should Price Gouging Be Legal

A pipeline leak in Alabama this week caused gasoline shortages in several southeastern U.S. states, including my home state of Georgia. Fortunately and unfortunately for motorists in Georgia, the state has an anti-price reduction law. These laws, commonly used by governors to stop price hikes after natural disasters, make consumers happy, but also discourage markets from easing shortages. In that sense, they are good policies, but bad economies. When demand reaches such a high level, it can be difficult to differentiate between supply and demand and price reduction. Policymakers and businessmen have always had different opinions on whether companies should raise prices during a crisis for this reason. Price increases due to natural disasters are a classic example of price gouging, and the government usually intervenes and directly prevents companies from doing so. However, such market interventions can have unintended consequences, which explains the ongoing debate among economists and policymakers about the appropriate response to natural disasters and falling prices. Federal law does not prohibit price gouging. However, most states prohibit it – at least when it comes to life-saving supplies during a declared state of emergency. Now that the president and almost all states have declared such a state of emergency in the face of the COVID-19 pandemic, anti-governance laws are fully in place. Price abuse occurs when companies raise prices to unfair levels.

There is no rule for what counts as a price reduction, but it is not an unusual event. For example, EpiPen`s costs and Uber`s price increases are two examples of price increases that are considered unfair. Unfortunately, any economist would tell politicians that while some people will benefit from anti-price reduction laws, others will suffer. Keeping prices artificially low than what would be necessary to balance supply and demand means that consumers who are lucky enough to buy some of the scarce product will get a better price than they would have without the anti-price law. At the same time, keeping prices below the liquidation price means that supply is running out and some consumers have to give it up. Third, price laws should be much clearer about when and where they apply. In order to avoid discouraging innovation and competition in areas unrelated to urgency, these laws should apply only to the types of goods and services affected by the emergency and not to other goods and services for which it is counterproductive to control prices for months. Want to know more about the price reduction debate? Here are some resources: However, states define price gougs very differently. Some define it as an “unscrupulous”, “exorbitant” or “inflated” price for certain products compared to the price before the state of emergency. These standards certainly appear to be met in recently reported cases where people hoard bottles of hand sanitizer purchased for a few dollars and then resell them for up to $70 each as a result of shortages caused by COVID-19-related panic buying. But aside from these dramatic examples, it won`t always be clear when a price increase might be considered “unscrupulous,” “exorbitant,” or “excessive” enough to be illegal under those states` laws. On the one hand, when we believe that price breakers are guilty of mutually beneficial exploitation, we believe that they are acting badly, even if their actions bring some benefit to disaster victims.

Price reductions often occur when the demand for a particular good, service or good suddenly increases, for example: in the event of natural disasters and emergencies. At times like these, demand for non-essential items and luxury goods declines, causing many businesses to lose the revenue they normally depend on. To compensate for this loss, retailers could raise prices for essential items to stay in business. On the other hand, if demand for essential goods or services suddenly increases, supply can quickly become very limited, further increasing prices. In response, some suppliers are likely to stay away from the rush instead of sending their products into new channels to meet increased demand, for fear of facing a price-cutting investigation or class action lawsuit. Similarly, companies that plan to introduce new products and charge more can wait until after the pandemic to enter the market.