Price gouging is different from changes in the demand curve, such as an increase in the price of a product or a substitute product or changes in consumer tastes, preferences, and expectations. Price gouging happens when retailers raise prices to unfair or exorbitant levels because of a lack of supply or a rise in demand, often after a natural disaster or other state of emergency.
Many states have laws that make it illegal for companies to overcharge customers, and breaking these laws can lead to harsh civil or even criminal punishments.
What Is Price Gouging and Why Is It Illegal?
Prices that are higher than they should be
There are no federal laws against price gouging in the U.S., and in many states, it is legal to do so. But most states have taken a hard stance against people who try to make money off of high demand or a sudden change in supply.
The National Conference of State Legislatures says that 37 states, plus the District of Columbia, Guam, Puerto Rico, American Samoa, and the U.S. Virgin Islands, have laws against what they consider to be “unfair or deceptive trade practises.”
Alaska, Arizona, Maryland, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, South Dakota, Washington, and Wyoming are some of the states that do not have laws against price gouging.
With only a few exceptions, state laws cover sudden price hikes during an emergency or crisis. These laws mostly cover essential services or consumer goods that people need to survive.
Some states, like Connecticut and Massachusetts, have laws about fuel and petroleum products, respectively. In Maine, on the other hand, it is illegal to make money off of rents.
In other parts of the United States, the California Business & Professions Code 22449 protects price gouging on trusted services like immigration consultants, attorneys, notaries public, and organisations that have been approved by the U.S. Board of Immigration Appeals. According to the New York State Office of the Attorney General, investigations into alleged price gouging of milk in New York found violations of New York General Business Law at food markets.
According to the unincorporated territory’s Department of Legal Affairs website, the law against price gouging in America Samoa forbids unjustified price increases of more than 10 percent on certain consumer food items or goods, emergency supplies, medical supplies, building materials, housing, other goods or services needed in an emergency, repair or reconstruction services, or any other services used in emergency cleanup.
Federal laws and jacking up prices
The National Law Review says that the COVID-19 pandemic has caused a public health emergency, which has led the federal government to propose legislation to stop price gouging in 2022.
The Price Gouging Prevention Act was introduced by Sen. Elizabeth Warren (D-MA), Sen. Tammy Baldwin (D-WI), and Rep. Jan Schakowsky (D-IL) in May. If signed into law, this act would make price gouging illegal during any unusual market disruption, like the pandemic. It would do this by letting the Federal Trade Commission (FTC) and state attorney’s general enforce a federal ban against unfairly high price increases, no matter where a seller is in the supply chain, according to a statement on Warren’s website.
The National Law Review says that Rep. Katie Porter (D-CA) also put forward the Consumer Fuel Price Gouging Prevention Act in May. The act is meant to keep fuel prices from going up too much for consumers. The act would let the president use an energy emergency proclamation to set price controls for fuels like gasoline and home heating oil that are “unreasonably high.”
Price hikes and rising prices
Many critics are focusing on companies that take advantage of consumers during this time of high inflation and overall economic turmoil. This is partly because the government is paying more attention to price gouging.
Economists have given this phenomenon the trendy name “greedflation” to try to explain why companies raise prices and make more money by saying they have to because of inflation. AskMoney’s Tamila McDonald says, “It implies that greed is the real reason for a rise in the price of goods and services and that the price increases aren’t justified by a real need for a price increase, like a rise in the cost of materials or labour.”
Greedflation is when greed is the only reason why prices are going up too much. If not, it’s because of inflation. The New York Times said that it’s a complicated situation in which “greedflation” is happening, but it’s also being used as a way to blame corporations and take attention away from the government’s role in causing inflation.
In the NYT article, Jason Furman, an economist who worked for Barack Obama, said that the current focus on price gouging and greedflation is being used to take attention away from the real causes and solutions of the country’s high rate of inflation.
