Gasoline Price Gouging After Hurricane Ike in South Carolina

Michael Giberson

In June, the South Carolina’s Office of the Attorney General issued a report on post-Hurricane Ike price gouging. The brief report is worth a look if you have an interest in price gouging laws.

Over 4,300 price gouging complaints were received by the SC attorney general’s office in the post-Hurricane Ike period. Lots of investigating eventually yielded just three retailers and one supplier that appeared to be offering gasoline at prices “out of line with general market prices and … potentially unconscionable” during the time the state’s price gouging law was activated, September 12 – October 12, 2008. In settlements the retailers each agreed to pay $500 and the supplier agreed to pay $5000 to a Red Cross fund for hurricane relief.

The report makes a general case for a supply and demand explanation of the price jump in the state. Gasoline supplies were already constrained due to the effects of Hurricane Gustav. Two major pipelines were offline or operating at reduced capacity. As Hurricane Ike approach, consumers rushed to fill up their gas tanks, causing a temporary spike in demand. The South Carolina law apparently accommodates market responses and the state only targeted companies that raised prices “out of line with general market prices.”

The report indicated that, “although there initially appeared to be significant price gouging, retailers’ markups were actually much less severe than they were with Hurricane Katrina in 2005.” The report concluded:

While there is no single reason that retail price spikes were less significant with Hurricane Ike, conversations with stations owners indicated a variety of factors: the already-high price of gas, fear of alienating customers, and heightened awareness of the state’s price gouging law, including the results the Attorney General obtained in 2005.

The report offered some interesting notes on the diversity of retail station actions during the supply disruptions:

Some stations went to great lengths to obtain fuel, with at least one South Carolina station trucking fuel from as far away as Virginia. Numerous South Carolina retailers purchased from North Carolina and Georgia in their scramble to find supply. Some stations and wholesalers in the Upstate and Midlands which always purchased gas from pipeline terminals had logistical hurdles in purchasing gas from unfamiliar port terminals such as Charleston. At the same time, a number of other station owners reported that to avoid bad publicity they simply shut their doors instead of purchasing gasoline at elevated prices.

Some station owners “simply shut their doors”?  So wait a minute, the state law allows the state government to harass gasoline retailers that remain open and offer high prices, but station owners can simply refuse to sell gasoline at any price – an action which makes consumers worse off – and the state can’t touch them?

Now I wonder about the claim that markups were less severe than with Hurricane Katrina, or rather, wonder whether consumers were actually better off or worse off due to the state law.  If many stations shut their doors in 2008 due the state’s anti-price gouging law, then the law is making consumers worse off.

Once again, Matt Zwolinski’s arguments on the ethics of price gouging seem relevant, and particular his non-worseness claim.  To wit, if you agree that a retailer could ethically refuse to sell a product during an emergency, say by closing shop, then since no one is worse off if the retailer remains open but offers products at a high price, it should not be seen as unethical for a retailer to remain open and offer products at a high price.  (See earlier discussion of Zwolinski and his non-worseness claim.)

ASIDE: Personally, I’m not much of a fan of using the threat of state legal action to generate donations to charity. Sure, as a business-owner under such a threat, I can see the value of paying $500 to charity rather than several times that to my attorney to fight off state action. But if, and it is a big if, if these station owners actually did something harmful to consumers in their area, those consumers are not compensated by these gifts. (Particularly so since the three stations were in the middle and western portions of the state, while hurricane relief money spent by the Red Cross will likely benefit people who live nearer the coast.)