Defining Price Gouging

As I warned yesterday, we may be on the verge of runaway gas prices in some areas. Today I spotted this story at CNN:

Complaints of rising gas prices as Ike hits

Some excerpts:

WASHINGTON (CNN) — President Bush Saturday said officials will ensure gasoline stations don’t gouge customers after Hurricane Ike, but with some prices near $5 a gallon, some consumers were not so sure.

Sean Kennedy, of Knoxville, Tennessee, took a photo of a Knoxville station displaying a $4.99 per gallon price for regular gasoline on Saturday. The previous day, he said, he had bought regular gas at the station for $3.59 a gallon. “I know the hurricane is causing a spike, but … [nearly] $1.50 in 24 hours?” Kennedy said.

The governors of Georgia, Louisiana and Florida said complaints of gouging would be investigated. Florida Gov. Charlie Crist said Friday that $5 a gallon “can only be described as unconscionable,” according to the AP.

“Raising rates to exorbitant levels like this only causes unnecessary panic and fear,” Crist said, according to the AP. “This type of behavior will not be tolerated.”

Here’s another from the AP:

Far from Ike’s path, an aftershock is felt: $5 gas

HOUSTON – From Florida to Tennessee, and all the way up to Connecticut, people far from Hurricane Ike’s destruction nonetheless felt one of its tell-tale aftershocks: gasoline prices that surged overnight — to nearly $5 a gallon in some places.

In Knoxville, Tenn., account executive Sharon Cawood said “one of our local gasoline chains called a local TV station Thursday, sometime during the day and said, ‘We’re running out of gas. We’re going up 80 cents a gallon… It caused a major scare.

In Florida, the attorney general’s office reported prices as high as $5.50 a gallon in Tallahassee and said it had received 186 gouging complaints.

What is Price Gouging?

This brings to mind the question, “What is price gouging?” In the past, I have written a number of articles on price gouging, mostly arguing that various accusations were groundless in the context of the particular supply/demand situation. From the perspective of a consumer or a government official, a knee jerk reaction to a sharp price rise may well be to conclude price gouging. But is it valid? Is a sharp price rise ever justified?

Much like the distinctions between various crimes, be it a debate on whether a death was murder, manslaughter, or just an unfortunate accident – my position on price gouging would come down to intent and motivation. If someone raises prices sharply because it looks like they will run out of gasoline supplies before their next delivery, I don’t believe that is price gouging. In other words, if the price rise is inventory driven, then it becomes much harder to argue that price gouging is taking place.

Raising prices in this sort of situation prolongs gasoline supplies, and ensures that those who desperately need gasoline can get it. Failure to raise prices in this sort of situation can mean that consumption will continue on as normal, which will run out supplies even more quickly. Or worse, if people think there are going to be gasoline shortages, and suppliers don’t raise prices (or ration), then they may find that hoarders run them out of gas even faster than normal. Given a choice, I think most people would prefer to have some gasoline at a much higher price rather than have prices stay low, but supplies run out.

On the other hand, let me describe a situation that I believe would qualify as price gouging. If a gasoline supplier has adequate supplies and there are no major concerns that they will run out of fuel – but they still sharply raise prices in the face of a crisis, then that would be price gouging in my opinion. In that situation, a person is not raising prices to protect their supplies, but instead to take financial advantage in an emergency situation.

So, how could one tell the difference? Unfortunately, it’s not black and white, but instead shades of gray. A person who is worried about falling inventories might be justified in raising prices by $1.00/gallon overnight, but what if they raised prices by $10/gallon overnight?

Or, say you had two gas stations across the street from each other, and both increased prices by $1.00/gal. In the first case, let’s say the owner has adequate inventories on hand, and no worries that he is going to run out. I would say that he is taking advantage. In the second case, if the owner is running low on inventories and is concerned about running out (because he gets his supplies from a refinery that has been negatively impacted), then I would say his price increase is justified.

But you can’t tell just by looking. You might think a sharp price rise is unjustified, but you can’t really know for sure unless you have more facts at your disposal. Simply put, my definition of price gouging is “attempting to take financial advantage by raising prices in an emergency.” If you raise prices to protect your inventories, then I wouldn’t necessarily conclude that there was price-gouging taking place. For me it all boils down to intent and motivation (and of course those can be difficult to pin down).

45 thoughts on “Defining Price Gouging”

  1. I take your point about inventories and needing to avoid running out for critical needs, but it’s not clear rationing by price achieves the objective. In an emergency we need to ensure that police, fire, and hospital needs are met first, and then public transportation (including air travel).

    I think the real lesson here is that folks should make sure they have their vehicles filled up in advance of events like this, and have a plan to reduce their personal consumption during any emergency. Otherwise, they may face rationing, be it by price, by government fiat, or outright shortages.

  2. Aside from denying people water or medical care because they don’t have the money, I don’t think there is such a thing as price gouging.
    An interesting story from econ class: You go sailing with a billionaire. He falls overboard. You grab a life donut-raft. He is drowning and frantic. You call down, “I will throw this life donut-raft to you, in exchange for $10 million.”
    Both sides benefit from the transaction. He doesn’t drown, and you get $10 million.
    Price gouging?
    Under conservative economic principles, it is not price gouging.
    By the way, the world’s worst editorial ever written appears in today’s L.A. Times.
    They note our federal highway system is running out of money. They say a raise in the gas tax from 25 cents to 40 cents, over three years, is not politically doable. Five cents a year, when the price might wing by a couple bucks anyway. The tax has been frozen for years.
    Therefore, they suggest all of our vehciles be outfitted with mileage sensors, and we pay a tax by the mile.
    Not only would this create some sort of unworkable intrusion into our privacy, it would not depress demand for gasoline, at a time when we are sending several hundred billion dollars a year to petro-dictators and thug states.
    I am just about to give up on the energy problem. Neither party has the minimal backbone to deal with energy. The Dems say no to any new development, and the R-Party says no to any taxes. And our media hatches harebrained ideas like mileable sensors in all our cars (how to retrofit, I do not know).
    France, Thailand, Australia — start looking around guys.

  3. Though it may be true that companies are raising prices to protect their inventory, from what I have seen recently in Knoxville the only reason people began running to the pump was because it was told the gas prices were going to spike. People were only trying to get gas before it hit $4.50/gallon. So I don’t believe any spike would have been necessary if the fear hadn’t been put into consumers mind to begin with.

    There are 2 intenties at fault for this I believe. The media is at fault for unneccarily provoking fear and the fule companies are at fault for premeditating a gas shortage, the media had to have gotten the information about gas hikes from somewhere. There are those who have said raising prices drastically is necessary but in areas where it is necessary to drive 40+ miles a day to work and home, how is an everyday family supposed to cope with spending $50-$100 on a tank of gas? Let’s find out who is at fault here and who has to suffer because of it and then fix it so it never happens again.

  4. “A person who is worried about falling inventories might be justified in raising prices by $1.00/gallon overnight”

    That’s a crock of shiite Robert. If they were selling gas with a .10 margin yesterday,they should have the same margin today. Plenty of stations around here were out of gas today,but they sold the last drop at the same price as the first. Gas stations have no business “protecting” gas inventories. Gasoline is like any other product. Would you be okay with stores marking up everything they run low on?

  5. “Gasoline is like any other product.”

    Is it like housing too?

    Suppose you decided to sell your house. If the inventory of homes in your area fell over the past month, and similar houses were selling for 3% more than last month, you presumably would not price to reflect that increase, and instead sell for 3% below market. After all, why should your margin increase? Your costs didn’t change over that month, and low inventory should not be a factor.

    Low inventory due to poor planning is a lot different from low inventory due to scarce product.

  6. “Is it like housing too?”

    It’s like any other product in the store armchair. It’s up to the wholesale market to set those prices. Grocers shouldn’t be allowed to change their margins overnight when there’s a shortage in the area. There were stores around here selling ice for $5 a bag after Katrina. Their costs didn’t change,but they saw a chance to take advantage of desperate people and took it. Gas gougers are no different.

  7. And if the wholesalers have done their part, but there are problems with the distribution system, or if some stations genuinely are running low, resulting in a localized retail shortage?

    I don’t support naked opportunism, but I would say two things… 1) defining the line between pure gouging and market forces is exceedingly tough to do, and 2) we shouldn’t automatically assume that if retail prices increase, it’s due to malicious gouging.

    Some gouging may well have occurred. The FTC’s study post-Katrina noted that “Based on these findings and other analyses of retail pricing data and retailer interviews, the Commission concludes that some price gouging by individual retailers, as defined by Section 632 (which is premised on a comparison to national average prices), did occur to a limited extent. Local or regional market trends, however, seemed to explain the price increases in all but one case. Exceptionally high prices on the part of individual retailers generally were very short- lived. Interviews with retailers that charged exceptionally high prices indicated that at least some were responding to station-level supply shortages and to imprecise and changing perceptions of market conditions.”

    http://www.ftc.gov/reports/060518PublicGasolinePricesInvestigationReportFinal.pdf

  8. If they were selling gas with a .10 margin yesterday,they should have the same margin today.

    So prices should only reflect margins, and not supply/demand issues? That’s an interesting take. As armchair alluded to, I bet that’s not how you price your house when you sell it.

    RR

  9. “that at least some were responding to station-level supply shortages and to imprecise and changing perceptions of market conditions.”

    That’s a crock if I ever heard one. Is it okay to charge $10 for the last loaf of bread on the shelf? What if your perception says a customer is having a nicotine fit?

  10. “So prices should only reflect margins, and not supply/demand issues?”

    That’s exactly right Robert. It’s not the retailers job to balance supply and demand. The spot market does that. You of all people should know that. There were many areas around here that were lucky to have a single gas station with electricity after Gustav hit. If those owners had felt it was their duty/opportunity to balance supply and demand,they could’ve bought a fleet of Lexuses with three days worth of profits. And demand wouldn’t have been affected one bit.

  11. It’s not the retailers job to balance supply and demand.

    Well I sharply disagree. If I as a retailer have trouble keeping an item in stock, then I will raise the price of that item until the supply is in line with the demand.

    I can also tell you that as a consumer, I would much rather have a choice of buying a gallon of gasoline at $10/gal than having no gasoline at all.

    RR

  12. “then I will raise the price of that item until the supply is in line with the demand.”

    And you’ll go to jail and pay a hefty fine if that item is gasoline.

    “I would much rather have a choice of buying a gallon of gasoline at $10/gal than having no gasoline at all.”

    That’s what the spot market is for Robert. What part of that can’t you understand? I’ve no problem with someone marking up their gas $5,or even $500 a gallon….as long as they do it every single day. But,a station that has a 6 cent margin before a storm,and a 60 cent margin afterwards is breaking the law….and the son of a biscuit eater should rot in prison.

  13. That’s what the spot market is for Robert. What part of that can’t you understand?

    The spot market can’t necessarily respond to a localized crisis. There may not even be a way to get gas in and out. That’s the point. If they were confident of continuing to get gas deliveries, then there isn’t a problem.

    But,a station that has a 6 cent margin before a storm,and a 60 cent margin afterwards is breaking the law

    6 cents yesterday, 60 cents today, and zero tomorrow because they ran out of gas. And no, that isn’t automatically breaking the law. Raising prices in response to shortages is not breaking the law. Following Katrina, the finding was the most of the retailers who raised prices had valid reasons. As armchair notes above, the findings of price-gouging were minimal (despite the fact that prices shot up quickly everywhere).

    RR

  14. If someone raises prices sharply because it looks like they will run out of gasoline supplies before their next delivery, I don’t believe that is price gouging. In other words, if the price rise is inventory driven, then it becomes much harder to argue that price gouging is taking place.
    Raising prices in this sort of situation prolongs gasoline supplies, and ensures that those who desperately need gasoline can get it.

    I’d think it ought to work that way, and yet the opposite happens. It seems instead that raising prices sharply causes people to panic, and to top off their tanks even if they don’t need to, depleting the supply quicker, making it more difficult for those who really need the gas, to get it. You still get hoarding. Even you were telling people yesterday to top of their tanks (hoard).

    The so-called “rationing” going on now seems useless when people get their 10 gallons of gasoline and then just get back in line to get another 10. I don’t know what the solution is. Anyhow, I figure the usual investigations into price gouging will yield the usual resultant findings that there was none or almost none.

  15. What if margins are falling Maury? Should retailers raise prices to maintain their margins, regardless of market forces? Methinks your view of economics is woefully inadequate.

  16. Raising prices in this sort of situation …… ensures that those who desperately need gasoline can get it.

    No, it ensures people with the most money can get it.

    You go sailing with a billionaire…….”

    If the billionaire and his butler both fall overboard, is it OK to let the butler drown because he doesn’t have $10 million?

  17. Now that it is reported that oil has dropped below $100/barrel. $96 per barrel as of this a.m. The lowest in 7 months. How quickly should the retail price fall? Or will they fall considerably at all.

    The real opportunity for gouging lays in the wake of the initial price spike. Prices will jump on just the rumor of a disruption in the supply but a real drop in oil prices as experienced this morning shows almost no response in kind.

    The longer the station resists lowering its price per gallon after any real or perceived crisis is past, the longer it reaps the benefit of the overcharging. There should be a real time correlation in both up and down swings not just one.

    In my opinion this is where gouging investigations should be focused.

  18. “What if margins are falling Maury? Should retailers raise prices to maintain their margins, regardless of market forces? Methinks your view of economics is woefully inadequate.”

    And methinks you haven’t been stuck in contra-flow for 12 hours,only to find one or two stations servicing thousands of customers when you were finally allowed to exit. THANK GOD those owners don’t think like some of you guys. Desperate people will pay any price,especially if their wives and children are in danger. Retailers(all one or two of them able to open) in Baton Rouge could’ve charged $20 a gallon after Gustav….and there still would’ve been long lines. I’m not suggesting highway robbery is as bad as armed robbery….but in a state of emergency it comes pretty damned close. Florida gives gas gougers 30 days in jail and a $1000 fine for each customer robbed. I think that’s way too lenient.

  19. We are seeing this play out in Houston. Nearly 2 million customers are without power. The local utility says it could take up to 4 weeks to fully restore the system. There isn’t an electrical generator to be had in the state of Texas. Some enterprising person from out of state loaded up a bunch of generators on the back of a flatbed and drove down to Houston to sell them, at a substantial profit. He was reported to the AG for “price gouging”. Why? Were not the people he sold the generators to better off? They had money but no power nor the means to solve the problem. Someone stepped up to fill the need. Who is to say what is a reasonable profit? Price allocates supply among those who need it. Profit is a universal good and beneficial thing.

  20. Maury – if you are going to argue against price gouging, then you must also argue against it’s evil sister – hoarding.

    We seem to always hear about gouging but not much on hoarding.

    If prices aren’t allowed to rise in response to an emergency, supplies get distributed by other means. High prices discourages hoarding. Let’s say I am buying gasoline for the car. If the prices rises to $10/gallon in an emergency I will only buy a little fuel, and will then conserve what I have in anticipation of much lower prices in a week or two.

    If the price stays the same or rises only a little bit, it doesn’t cost me much to top off the tank compared to the future value of the fuel. So I might be tempted to buy more fuel than I need NOW as a hedge against a future outage.

    In my case, all our vehicles are fueled up so that we can go for at least 2 weeks until we run out of gas.

  21. “Some enterprising person from out of state loaded up a bunch of generators on the back of a flatbed and drove down to Houston to sell them, at a substantial profit. He was reported to the AG for “price gouging”. Why? “

    Nothing will happen to him. And nothing SHOULD happen to him. If the local Home Depot doubled their price on generators,they’d probably be shut down though. You can’t just rob people who need essential commodities at times like these kingofkaty. I talked to an owner of a station with no gas this morning. He’s out of gas because he doesn’t want to pay almost $5 a gallon. His mark-up is 6 cents. That’s the lowest allowed by state law. There’s no law saying he can’t double the price….as long as he doubles it during good times and bad.

  22. “If prices aren’t allowed to rise in response to an emergency, supplies get distributed by other means.”

    But they ARE allowed to rise kingofkaty. What isn’t allowed to rise,at least not by leaps and bounds,is the retailers mark-up. A retailer in Tallahasse was investigated over the weekend for selling gas at $5.49 while the statewide average was $3.79 a gallon. He was cleared,because his invoices reflected the wholesale price increase. If his mark-up was way out of line with his average mark-up over the previous 60 days,he’d be going to jail.

  23. What is disturbing about charges of "price gouging" is that they tend to be made by high-priced lawyers or preening politicians sitting in comfortable offices with lots of time to draft & redraft their statements.

    We need to have some consideration for the "man in the arena" — the guy under severe pressure who has to make a quick choice between alternatives which range from bad to worse.

    You are running a gas station after a severe storm. You got no sleep last night. Your staff has not turned up for work. There's a long line at the pumps already, and people are getting angry. You get a call from your distributor saying that his supply chain was disrupted by the storm; he will try to line up alternative supplies, but does not know if he will be able to find any and certainly does not know what the price will be. Then the local police chief calls up to check that you will be able to continue fulfilling your contract to supply his department — and the additional State Police who are on the way to help out after the storm. And the level in your tanks is dropping fast.

    Now what do you do? And what right does any grasping lawyer have to second guess the decision you have to take in the next 30 seconds?

  24. enterprising person from out of state loaded up a bunch of generators on the back of a flatbed and drove down to Houston to sell them, at a substantial profit. He was reported to the AG for “price gouging”.

    Glad to see you online. I guess it’s a good day to be King of Katy instead of King of Gilchrist.

    I read this EXACT same story after Katrina. Strarting to sound a bit urban-mythy.

    Libertarians love to trot out these stories to illustrate how gouging “helps” people in need. In reality, Home Depot or wherever he bought the generators can move them into the affected area much more efficiently than a gouger with a flatbed. His bulk purchase disrupts Home Depot’s ability to help the people in need.

  25. “Now what do you do? And what right does any grasping lawyer have to second guess the decision you have to take in the next 30 seconds?”

    You close up and go home. The pumps will still work if you have electricity. They can even be set to recognize only fuelman(most police use them)cards. But,you don’t make more than you normally would off of what you have in the ground just because you can. That would be stealing.

  26. We live out in Katy. Lots of down trees and fences but not much else. Winds during the storm were 75 mph or so. We lost power at 10pm Friday and had it back at 7pm on Saturday. The COP main campus had power and water back on Saturday by 2pm. There are maybe a couple of hundred of us in the offices today.

    Centerpoint Energy’s main transmission lines were undamaged. The problem is mostly downed lines and transformers at the distribution level. The hurricane Ike outage is nearly as large as the east coast power failure a few years ago. It will be a real challenge to get it up and running again.

  27. We need to harden the grid along the Gulf Coast kingofkaty. If refineries,and pipeline and storage facilities down here lose power,folks all over the country are affected. Katrina should have taught us that much.

  28. Gage-
    Oil dumping hard today. Again. Down to $97, and headed south fast.
    Every dollar down is another speculator that is forced to liquidate, driving the price down more. Evidently some speculators actually believed oil could be sustained north of $100. Or even north of $150.
    We could see $60, we could see $40 a barrel soon.
    Maybe even $20 Impossible?
    Oil was selling for $10 a barrel in 1998. The marginal costs of production are much lower than the total cost of production.
    This would be a terrific time to raise federal taxes on gasoline, to rebuild our transportation and energy infrastructures, and depress demand for foreign oil from thug states.
    But, it is more important that we argue about lipstick on a pig.

  29. Doggy – could be urban myth, except that I heard it on the radio yesterday with a specific location. Maybe I’m just too much of a libertarian on this issue. There is no perfect system for distributing supplies in an emergency.

    Just the threat of price gouging though is enough to keep people from even trying to supply in an emergency. For Maury’s example, let’s say the retailer pays $5 per gallon from the wholesaler for the next 10,000 gallons of fuel. If the price drops back to $3 he loses $20,000 on the whole shipment. If however, he sets the price at $10/gallon immediately, he only needs to sell 4,000 gallons of the original 10,000 to cover his potential losses. If he doesn’t sell enough gas at $10 then he will lower the price to $8 or $7 until demand picks up.

    I don’t see how closing the station does anybody any good.

  30. Maury – my group operates co-generation facilities at 2 of the local refineries. I think that is a better solution than hardening the entire grid. It also allows us to take advantage of energy integration.

    Of course if “the one” is elected he would assess windfall profits on the big 5 domestic energy companies. Raising the marginal tax rates DISCOURAGE investments in cogeneration and efficiency.

  31. Benny – lower commodity prices may be partly due to Lehman Brothers meltdown. LB is likely unwinding its positions to raise cash. They were suspended from trading on the London exchange. Just having them out of the market should reduce the volume traded and will have some effect on prices.

    I don’t think we are headed for $40 again. There is a lot of marginal production that would get shut in before then. But $60 is not unthinkable.

  32. “You close up and go home.”

    And next thing, there is some politically well-connected lawyer thumping you with a law-suit for failing to provide essential fuel during an emergency, causing irreparable harm to the client he just picked up at the welfare office.

    It's the real world, Maury. Whatever you do, someone is going to complain.

    There is no right answer. You closed up shop and abandoned the public when they needed you most; that was wrong. I would have boosted the price to spin out the limited available supply — and that would have been wrong too.

    But neither of our mistakes was as purely evil as the politicians & lawyers who were nowhere to be seen at the time of crisis and are now second-guessing us for their own narrow benefit.

  33. It wouldn’t be possible to, as this writer says, take advantage of consumers in an emergency, unless an oligopoly arises amoungst retailers. All he is describing is switching between the profit maximization point of a competitive and a monopoly market. A retailer could not charge 10$ more a gallon for petrol unless all the other retailers did the same, and the only way they could do this is collusion. If they are actually competing in the market, the price should remain at what he calls an inventory driven level.

  34. It’s not clear to me why it’s acceptable for prices to be set by market conditions in some segments of the supply chain (exploration, refining), but that in others (distribution, retail) prices should be arbitrarily capped to cost plus margin, regardless of market signals.

    Why not, for example, force producers to supply crude at cost plus margin, but allow retailers to price according to market?

    As kinuachdrach says, this is the real world. If 100 people want 100 gallons of gas, and all of the sudden there are only 80 available, and the shortfall is real and not contrived, what do you do? If you know of a better market allocation system than price, we’d like to hear about it.

  35. King-
    First, glad to see you are at and at ’em, still poles apart from me on many issues, but hey, that is what makes converstion interesting.
    I am surprised marginal cost of production is higher than $40 anywhere. After all, nearly all current production was planned and put into place assuming $30 a barrel, or less. The marginal cost of Saudi Arabian oi is $2.
    Remember, marginal cost is the cost of production, and does not include capital costs, or even overhead.

  36. At first, I wasn’t following what Maury was getting at, but now I see something. There is an existing legal definition for “price gouging” and raising prices because because it looks like you’ll run out of supplies before the next delivery is not a defense in FL. The AG of Florida has a page explaining it in layman’s terms.
    http://myfloridalegal.com/pages.nsf/Main/5D2710E379EAD6BC85256F03006AA2C5?OpenDocument

    If you try to redefine “price gouging” to say it’s okay to raise prices because of fear of running out of supplies to sell, your new definition is as valid or bogus as the guy on the street whining about price gouging, or a bogus as trying to redefine the line between “involuntary manslaughter” and “accident”. Intent has little to do with it. I hope RR will use the legal definition of “price gouging” in future posts.

  37. Benny – true enough, the marginal costs in the KSA are very low and would be the last production to be shut it.

    But there is a lot of oil in the US that is produced from water flood or CO2 flood that is expensive. Also look at the oil sands in Alberta. That production requires injecting steam into the reservoir to get the crude to flow. As prices dropped, it would be less profitable to drill in North America. There are just over 2,000 drilling rigs working the US, about 3/4 of them looking for gas. The incremental oil production from these wells is prettty expensive. Low prices would likely stop at least some of the drilling in the Williston Basin and other fields.

  38. Benny,

    Your marginal cost of production is equivalent to the cost of keeping existing wells online. It doesn’t cover corporate overheads, exploration, taxes, etc. If the assets are breaking even at $30, that’s one thing. If the corporation is rapidly losing money at $30, that’s another thing. Exploration and expensive new projects will get hit.

    While $30 may work now for a large percentage of producing assets, it’s setting up a future supply crunch and therefore probably higher prices. I don’t think it’s a stable price, barring significant new alternative sources of energy.

  39. I hope RR will use the legal definition of “price gouging” in future posts.

    The problem is that the legal definition you posted – and this is generally the case with attempts to define price gouging – uses terms like “grossly exceeds.” Unconscionable is also a popular word. Those have no fixed meaning, and so we are back to arguing the point I argued in this post. What is price gouging? That definition also says the seller is justified if it is based on market trends. So I guess it wouldn’t be gouging if everyone else was raising their prices by $1/gal?

    RR

  40. Yes, “grossly exceeds” and “unconscionable” are pretty vague. Apparently in Arkansas, and West Virginia, it means 10% above.
    http://www.ncsl.org/programs/press/2005/price_gouging.htm

    Market trends. I think that means if everyone was raising prices by $1/gal per day, during the week or month before the state of emergency was declared, then you can continue to raise prices by $1/gal per day during the state of emergency. But I’m not a lawyer, and I don’t play one on TV.

    Still, it seems pretty clear that fear of running out of stuff to sell is not a defense for raising prices.

  41. It is vastly preferable to ration by price than to ration by first come, first serve.

    In the former anyone who needs gasoline bad enough can get it.

  42. “There were stores around here selling ice for $5 a bag after Katrina. Their costs didn’t change,but they saw a chance to take advantage of desperate people and took it.”

    If I was one of these desperate people and really needed the ice to cool my insulin shots or something; I’d want them to charge $5 or even more for the ice. I want priority over the guy who’s wasting it on less vital purposes and a higher price will ensure that.

    If the price is allowed to rise there’s a strong incentive for some entrepeneuring chap to rent a pickup and buy hundreds of bags of ice to allieviate an outright shortage.

    If I can’t get ice at all the price is essentially infinity dollars.

  43. If price gouging is real, would it be reasonable to examine historical pricing, comparing rises vs falls?
    I’m wondering if we would observe that prices rises faster on average than they fall. And if so, does this tell us anything about gouging.

  44. you do realize, i hope, that price gouging — however defined — cannot exist in a competitive marketplace. That is, unless all the gas stations in an area collude to unnecessarily raise prices together, an individual station would have a hard time massively raising prices because consumers would go to the station down the street where prices were normal. Logically — and this assuming gas stations are only acting in their own best interests, which they are, the only way prices would ever rise so dramatically is under an emergency situation with stock shortfalls and a need to ration supply. The competitive market — emphasis on competitive — ensures the greatest fairness to the consumer since they can always go elsewhere if necessary.

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