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ZorbaTHut  2yr ago (text post)   5683 thread views

Small-Scale Question Sunday for September 18, 2022

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

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What is "price gouging"?

You could try looking at the definitions that legislatures have chosen to implement. For example, here's New Jersey (Statutes title 56 ยงยง 8-107, 108, and 109):

The Legislature finds and declares that during emergencies and major disasters, including, but not limited to, earthquakes, fires, floods or civil disturbances, some merchants have taken unfair advantage of consumers by greatly increasing prices for certain merchandise. While the pricing of merchandise is generally best left to the marketplace under ordinary conditions, when a declared state of emergency results in abnormal disruptions of the market, the public interest requires that excessive and unjustified price increases in the sale of certain merchandise be prohibited. It is the intention of the Legislature to prohibit excessive and unjustified price increases in the sale of certain merchandise during declared states of emergency in New Jersey.

"Excessive price increase" means a price that is excessive as compared to the price at which the consumer good or service was sold or offered for sale by the seller in the usual course of business immediately prior to the state of emergency. A price shall be deemed excessive if:

(1) The price exceeds by more than 10 percent the price at which the good or service was sold or offered for sale by the seller in the usual course of business immediately prior to the state of emergency, unless the price charged by the seller is attributable to additional costs imposed by the seller's supplier or other costs of providing the good or service during the state of emergency;

(2) In those situations where the increase in price is attributable to additional costs imposed by the seller's supplier or additional costs of providing the good or service during the state of emergency, the price represents an increase of more than 10 percent in the amount of markup from cost, compared to the markup customarily applied by the seller in the usual course of business immediately prior to the state of emergency.

"State of emergency" means a natural or man-made disaster or emergency for which a state of emergency has been declared by the President of the United States or the Governor, or for which a state of emergency has been declared by a municipal emergency management coordinator.

It shall be an unlawful practice for any person to sell or offer to sell within 30 days after the declaration of a state of emergency, or for such other period of time as the Governor may specify in the declaration of a state of emergency, in the area for which the state of emergency has been declared, any merchandise which is consumed or used as a direct result of an emergency or which is consumed or used to preserve, protect, or sustain the life, health, safety or comfort of persons or their property for a price that constitutes an excessive price increase. The Governor may by executive order extend the period during which this prohibition remains in force.

Interesting. So the obvious workaround would be for existing retailers to close during declared emergencies and reopen as (or sell their stock to) a new company "Emergency-Mart!" that has never previously sold that merchandise, who can then freely sell it at the higher price customers are willing to pay.

Does that happen in New Jersey?

They usually go after independent sellers running an unorganized "emergency store" the hardest.

It shall be an unlawful practice for any person to sell or offer to sell within 30 days after the declaration of a state of emergency, or for such other period of time as the Governor may specify in the declaration of a state of emergency, in the area for which the state of emergency has been declared, any merchandise which is consumed or used as a direct result of an emergency or which is consumed or used to preserve, protect, or sustain the life, health, safety or comfort of persons or their property for a price that constitutes an excessive price increase.

The most basic rules of economics go completely out the window after an emergency, because it doesn't feel fair to people, even if it would result in more emergency supplies being available.

The problem with price-gouging in emergencies is that the combination of "people desperate", "local authorities off-balance", and "apparently-hostile behaviour" very frequently results in the consumer shooting the would-be price-gouger and taking the goods for free.

There are economic costs of price-fixing, certainly, but it has the social benefit of appearing honourable and staying within norms, thus discouraging ballistic discount. In terms of reasons to be coercive about it rather than let the market sort it out, part of it is the price-gougers not thinking that far ahead since emergencies are rare, and part of it is the externalities to society i.e. having people get mugged is bad for social cohesion and economic throughput above and beyond the detriment to the mugged person.

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