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Price gouging
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Price gouging is a frequently pejorative reference to a seller's asking a price that is much higher than what is seen as 'fair' under the circumstances. In
precise, legal usage, it is the name of a felony that obtains in some of the United States only during civil emergencies. In less precise usage, it can refer
either to prices obtained by practices inconsistent with a competitive free market, or to windfall profits. In colloquial usage, it means simply that the
speaker thinks the price too high, and it often degenerates into a term of demagoguery. Non-pejorative uses are generally in reaction to what the writer
believes is an unjustified restraint on the market.
All market-based economic theory regards price controls of any kind with suspicion, and many economists reject them utterly, making no exception for
short-term controls in a state of emergency. Libertarians are among those who robustly defend the right of firms to charge what they want regardless of
the circumstances.
As a criminal offense, Florida's law is reasonably typical. Price gouging may be charged when a supplier of essential goods or services sharply raises the
prices asked in anticipation of or during a civil emergency, or when it cancels or dishonors contracts in order to take advantage of an increase in prices
related to such an emergency. The model case is a retailer who increases the price of existing stocks of milk and bread when a hurricane is imminent. It
is a defense to show that the price increase mostly reflects increased costs, such as running an emergency generator, or hazard pay for workers.
The term is similar to profiteering but can be distinguished by being short-term and localized, and by a restriction to essentials such as food, clothing,
shelter, medicine and equipment needed to preserve life, limb and property. In jurisdictions where there is no such crime, the term may still be used to
pressure firms to refrain from such behavior.
Some support the ability to raise prices under such circumstances, asserting that government prohibition of the practice is a violation of individual
rights or that the ability to raise prices has beneficial effects or both. While some economists who defend the practice use the term "price gouging",
others disparage it as merely pejorative.
The term is not in widespread use in economic theory but is sometimes used to refer to practices of a coercive monopoly which raises prices above the
market rate that would otherwise prevail in a competitive environment. [1] [2] Alternatively, it may refer to suppliers' benefiting to excess from a
short-term change in the demand curve.
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Criticism of price gouging
In the United States, laws against price gouging have been held constitutional as a valid exercise of the police power to preserve order during an
emergency, and may be combined with anti-hoarding measures. The usual argument is fourfold.
1. The community as a whole may well possess sufficient stocks to sustain it through the emergency, provided that panic can be avoided. Sharp
increases in price may trigger such panic.
2. When people's resources are strained by a situation beyond ordinary prudence, the corrective tendencies of the market are too slow and
communication too uncertain.
3. In an emergency, ordinary legal protections are impractical. Thus, refusing to sell lumber at an advertised price may constitute fraud and refusing to
honor a reservation may constitute a tort, but the harm is likely to be irreparable long before a case can be brought.
4. Regardless of theory, when people become desperate, public order becomes precarious. Emergency services are likely to be strained by both
increased need and reduced capacity. Riots by otherwise law-abiding citizens could prove overwhelming.
Exceptions are prescribed for price increases that can be justified in terms of increased cost of supply, transportation or storage. Statutes generally give
wide discretion not to prosecute: in 2004, the State of Florida determined that one-third of complaints were unfounded, and a large fraction of the
remainder were handled by consent decrees, rather than prosecution.
* Florida Attorney General FAQ Concerning Price Gouging
* Condemning Price Gouging with Respect to Motor Fuels Following Terrorist Acts of September 11, 2001 in the Congressional Record
* The Non-Crime of Price Gouging A criticism of laws against price gouging
* The Benefits of Price Gouging A defense of price gouging from an objectivist perspective
* Let ’Em Gouge: A Defense of Price Gouging by Jerry Taylor & Peter VanDoren
* Studies on the perceived fairness of demand-based pricing.
* Account of the failed ambient temperature-based pricing of soda.
Retrieved from "http://en.wikipedia.org/wiki/Price_gouging"
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FTC gas price fixing investigation releases their report..."no price fixing here!"
CNN Money has just reported that the Federal Trade Commission has come back with a "negative" in their investigation into allegations of the big oil
companies illegally manipulating gas prices. Despite this overall "negative" finding, the FTC did find "15 examples that fit lawmakers' definition of
price-gouging."
Is it just me, or should I have been more surprised if they did come back with a report of widespread illegal manipulation of gas prices by these assholes?
While I am constantly amazed at the lies that our government tells us on a daily basis (and gets away with), I am still shocked when they release reports
like this. All of the evidence points to price fixing, yet the FTC is just fine telling the American people that gas really does cost $3.50 a gallon without
artificial manipulation.
I am a bit disappointed that the article is extremely short, but will keep an eye out for a follow-up that will hopefully be a little more informative.
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lpferris – Mon, 2006 – 05 – 22 19:19
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