A free-market energy blog
Random header image... Refresh for more!

Category — Price “Gouging” Laws

“Price Gouging” Laws: Ten Research Areas in the Economics of Unintended Consequences

For most economists, the workings of “price gouging” laws are simple and predictable. Binding price caps in emergencies create shortages on the most urgently needed goods and services during emergencies.

The recommended policy reform is simple, too: stop harming citizens when they can least afford it!

It would seem to be an open-and-shut case, a slam dunk for economics to inform the electorate and thus policymakers to avoid such folly. Remember the gasoline lines and natural gas shortages of the 1970s? Perhaps no simple event has convinced mainstream economists that price controls have bad consequences despite intention.

Defenders of economic liberty have an even easier argument: merchants ought to be free to ask what ever price they like for the goods and services they offer. Price gouging laws unjustly limit that freedom and government ought not to do that.

Yet, some 34 states and the District of Columbia have laws that impose price caps on urgently needed goods and services during emergencies. The easy arguments of free-market economists are not winning policy debates.

One response is to make it easier for the non-specialist to understand why price gouging laws cause more harm than good, as with Matt Zwolinski’s short video on price gouging for LearnLiberty.org. My own price gouging essay in Regulation magazine might serve a similar purpose for the non-specialist policymaker audience.

A complementary line of work digs deeper into the economics of price gouging in an effort to trace out the consequences of the laws. Defenders of price gouging prohibitions are comforted by their good intentions and a vague sense that somehow emergencies would be worse if prices were freer to adjust. Careful empirical and theoretical work on the consequences of price gouging laws can help undermine this false comfort.

In that spirit, here are ten researchable price gouging topics for economists. [Read more →]

December 11, 2012   2 Comments

‘Price Gouging’ Law: Why Waste State and Consumer Resources during Emergencies?

[Ed. note: This post follows yesterday's post by Donald Hertzmark challenging a call for federal price controls on energy.]

The spectacular problems that beset the Federal Emergency Management Agency (FEMA) after Hurricane Katrina have led analysts of weather emergencies to look elsewhere for leadership, or even evidence of competence.

Increasingly, that leadership has been found prominently in the private sector: among companies being recognized for their emergency response capabilities are big box retailers like Walmart and Home Depot and the regional restaurant chain Waffle House.

One reason that some government agencies may be failing is that their attention is directed to the wrong things. High on that list is policing against high prices during emergencies. Basic economic analysis finds that price gouging laws end up wasting state government resources and wasting consumers’ time during emergencies.

New Jersey re Hurricane Irene

If you review official announcements in the days surrounding Hurricane Irene, you’ll notice that in some states much emphasis was placed on warning merchants against price gouging and encouraging consumers to report “suspicious price increases.”

Just before Hurricane Irene came ashore, the State of New Jersey thought it importantto urge “consumers to be alert for potential abuses including gasoline price gouging, home repair scams, and fraudulent charity solicitations.”

Subsequently the state reported receipt of 103 consumer price gouging complaints, which the state duly investigated. The investigation ended up finding no stations guilty of price gouging, though three stations allegedly violated the state’s law against changing gasoline prices more than once in a 24-hour period. The three stations have been cited by the state.

Several persons died in New Jersey due to flooding, and the damages may reach “billions of dollars” according to Governor Chris Christie. These are real emergency issues. In response, among many other actions, the state had investigators out counting how many times gasoline stations may have changed prices within each 24-hour period since the emergency was declared.

Maryland’s Experience

But, you protest, without the anti-price gouging law and attempts to enforce it, New Jersey residents would have been held hostage by greedy gasoline retailers anxious to exploit consumers in peril.

Really? Neighboring Maryland doesn’t have a law against price gouging. Anyone notice Maryland consumers being exploited by greedy gasoline retailers? [Read more →]

October 4, 2011   3 Comments