Price gouging

Price gouging is a term referring to when a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair, and is considered exploitative, potentially to an unethical extent. Usually this event occurs after a demand or supply shock. Common examples include price increases of basic necessities after hurricanes or other natural disasters. In precise, legal usage, it is the name of a crime that applies in some jurisdictions of the United States during civil emergencies. In less precise usage, it can refer either to prices obtained by practices inconsistent with a competitive free market, or to windfall profits. In the former Soviet Union, it was simply included under the single definition of speculation. Price gouging is a term referring to when a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair, and is considered exploitative, potentially to an unethical extent. Usually this event occurs after a demand or supply shock. Common examples include price increases of basic necessities after hurricanes or other natural disasters. In precise, legal usage, it is the name of a crime that applies in some jurisdictions of the United States during civil emergencies. In less precise usage, it can refer either to prices obtained by practices inconsistent with a competitive free market, or to windfall profits. In the former Soviet Union, it was simply included under the single definition of speculation. The term is similar to profiteering but can be distinguished by being short-term and localized, and by a restriction to essentials such as food, clothing, shelter, medicine and equipment needed to preserve life, limb and property. In jurisdictions where there is no such crime, the term may still be used to pressure firms to refrain from such behavior. The term is not in widespread use in mainstream economic theory, but is sometimes used to refer to practices of a coercive monopoly which raises prices above the market rate that would otherwise prevail in a competitive environment. Alternatively, it may refer to suppliers' benefiting to excess from a short-term change in the demand curve. As a criminal offense, Florida's 'state of emergency' law is an example. Price gouging may be charged when a supplier of essential goods or services sharply raises the prices asked in anticipation of or during a civil emergency, or when it cancels or dishonors contracts in order to take advantage of an increase in prices related to such an emergency. The model case is a retailer who increases the price of existing stocks of milk and bread when a hurricane is imminent. In Florida, it is a defense to show that the price increase mostly reflects increased costs, such as running an emergency generator, or hazard pay for workers, while California places a ten percent cap on any increases. In the United States, state laws against price gouging have been held as 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. As of January 2019, 34 states have laws against price-gouging. If you are concerned about price-gouging, you should refer to your individual state's law. Price-gouging is often defined in terms of the three criteria listed below: Statutory prohibitions on price gouging become effective, thus protecting people from exploitative increases in the costs of essential goods, once a state of emergency has been declared. States have legislated different requirements for who must declare a state of emergency for the price protections to go into effect. Some state statutes that prohibit price gouging—including those of Alabama, Florida, Mississippi, and Ohio—protect against price increases only once the President of the United States or the state's governor has declared a state of emergency in the impacted region. California permits emergency proclamations by officials, boards, and other governing bodies of cities and counties to trigger the state's price gouging law. State laws vary on what price increases are permitted during a declared disaster. California has set a 10 percent ceiling on price increases. Florida prohibits a price increase “that grossly exceeds the average price” of that same item in the 30 days leading up to the emergency declaration. Some state laws do not define what constitutes a “gross disparity,” making it difficult for either affected residents or law enforcement to determine when price gouging has occurred, while others merely limit vendors and landlords to price increases of less than 25 percent. Laws often include exceptions for price increases that can be justified in terms of increased cost of supply, transportation, demand or storage.