Price Gouging - Laws Against Price Gouging

Laws Against Price Gouging

In the United States, laws against price gouging have been held constitutional at the state level as a valid exercise of the police power to preserve order during an emergency, and may be combined with anti-hoarding measures. 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, Florida determined that one-third of complaints were unfounded, and a large fraction of the remainder were handled by consent decrees, rather than prosecution. Proponents of laws against price gouging assert that it can create an unrealistic psychological demand that can drive a non-replenishable item into extinction. As of 2008, thirty-four states in the United States have enacted laws against price-gouging. Price-gouging is often defined in terms of three criteria listed below:

1. Period of Emergency: The majority of laws apply only to price shifts during a time of disaster.
2. Necessary items: Most laws apply exclusively to items which are essential to survival.
3. Price ceilings: Laws limit the maximum price that can be charged for given goods.

A prevalent concern surrounding price gouging is that it exploits consumers. Supporters of anti price gouging laws argue that it is morally wrong for sellers to take advantage of buyer’s vulnerability and increased demand. Buyers are not coerced to take part in this exchange and they voluntarily agree to pay the seller’s asking price. In addition to these mandated laws, many businesses avoid increasing prices after a disaster in order to avoid consumer backlash and stigma.