By Giovanna da Silva
Last year, Hurricanes Harvey and Irma brought price gouging back into the national spotlight. During and after Hurricane Irma, the Florida Attorney General, Pam Bondi, received over 14,000 complaints of price gouging. While there are 10 active ongoing investigations of price gouging, only one case has been resolved since December.
Price gouging is a pejorative term that describes the practice of businesses substantially increasing the prices for goods during times of emergencies. Proponents of anti-price gouging legislation often argue that price gouging is exploitative and can make it difficult for economically vulnerable people to access necessary supplies during a storm. Unfortunately, however, anti-price gouging laws may create the unintended consequence of limiting supplies at a time where people need them most.
Currently, 34 states, including Florida, have enacted anti-price gouging laws to protect consumers. As a general rule, these laws place a ceiling on the amount that businesses can raise the price of goods during a time of emergency. Anti-price gouging legislation is a relatively recent trend that began in the 1980s and took off during the 1990s and mid-2000s. In response to price hikes in heating oil during the winter of 1978–79, New York became the first state to pass anti-price gouging legislation. During Hurricane Katrina, the price of gasoline rose an average of 46 cents.This sparked outrage across the country and prompted several states to adopt anti-price gouging laws.
Florida’s anti-price gouging statute prohibits “unconscionable” price increases of essential commodities such as food, gasoline, water, and hotel rooms. Unless the good faces an increase in production costs or the price of the commodity is impacted by “international market trends”, prices should not substantially increase from their average prices 30 days prior to the state of emergency according to the law. Those caught violating the law are subject to a fine of $1,000 per violation and $25,000 for committing multiple violations during a 24-hour period.
Economic consultants W. David Montgomery, Robert Baron, and Mary Weisskopf investigated the potential social impacts of federal price gouging legislation during natural disasters.They estimated national price controls would have increased the costs of recovery by nearly $2 billion in additional damage during Hurricanes Katrina and Rita. With price controls, the supply of gas would decrease because distributors have fewer incentives to ship supplies into disaster-stricken areas. They argued that the economic costs incurred due to the disruption of the oil supply would have sharply increased:
“Under price controls, this loss would have been much more localized in the regions that lost supplies, like Louisiana and Mississippi, because there would have been no incentive to increase imports of either crude oil or refined product, or to retain shipments that would normally have gone to other regions, and run refineries at costly and unsustainable levels of output.”
Others claim that anti-price gouging legislation encourages hoarding. Hoarding became a widespread phenomenon in Texas during Hurricane Harvey. One particularly egregious case involved a person taking advantage of low gasoline prices by filling two large trash cans with several gallons worth of gasoline. His actions and the actions of other hoarders prevented people from acquiring gas during a time of emergency, ultimately restricting the supply of essential commodities. Price gouging can also encourage the formation of black markets, where malicious actors purchase a large number of products to sell back to consumers at a much higher rate.
Small, family-owned businesses are more likely than corporations to be impacted by price gouging legislation. This is because they are less equipped to provide commodities at lower prices. The supply network of local stores is smaller than that of larger chains such as Walmart, who can call for backup supplies much more easily or divert good shipments to the areas directly impacted by the disaster. Local mom-and-pop stores are therefore more likely to face fines for price gouging during a natural disaster.
While the moral sentiment behind price gouging legislation is valid, the regulations behind it hurt consumers and may hinder emergency management responses. Localized response efforts including charities can help those who are economically vulnerable access supplies during price hikes. Larger enterprises and corporations can also play a role in providing relief and distributing necessary goods to those in distress. Following Hurricane Maria, Walmart donated over $7 million to Puerto Rican recovery efforts; and the company contributed $20 million to Texas after Hurricane Harvey. Phasing out price gouging legislation is necessary for mitigating the damage incurred during natural disasters and ensuring a speedy recovery.