From Columbia, South Carolina’s The State newspaper, more evidence of the predictable effects of anti-price gouging laws:
A day after drivers began a panic-buying run on gas, S.C. Attorney General Henry McMaster invoked the state’s price-gouging law with fines up to $1,000 per offense and up to 30 days in jail. Hotlines were set up to take complaints.
Fearing gouging accusations, a few station owners refused to take pricey deliveries, said [Michael] Fields, whose trade group represents convenience stores and fuel suppliers.
He did not have numbers on how many stations turned away refills after Hurricane Ike cut off much of the state’s gas supplies from the Gulf of Mexico. A state report on last year’s gas shortage said stations bought at least 180,000 gallons of gas at $5 or more per gallon.
As states have become more active in pursuing allegations of price gouging, gasoline merchants are responding by shutting down rather than offering prices that might trouble consumers. I don’t know of any data to support my claim – this is just my casual observation fed by reading newspaper stories on price gouging. (I wonder if oil price information purveyor OPIS has the relevant data?)
More from South Carolina:
McMaster, who is seeking the Republican nomination for governor, said he first learned about some stations refusing to take deliveries after Ike when contacted by The State newspaper this week.
What? McMaster first learned about such refusals just this week? I guess he doesn’t read Knowledge Problem on a regular basis, because a month ago I posted on exactly that issue in “Gasoline price gouging after Hurricane Ike in South Carolina” (see also the related news from West Virginia, discussed in “Predictable consequences of anti-price gouging laws”).
I guess S.C. Attorney General McMaster also didn’t read the Gas Price Gouging Report issued by the, ahem, South Carolina Office of the Attorney General (and cited in my KP post), which said: “a number of other station owners reported [to investigators from the Attorney General’s office! -MG] that to avoid bad publicity they simply shut their doors instead of purchasing gasoline at elevated prices.”
The A.G.’s report illustrates the issue well enough: suppliers losing their normal supply channels during a declared emergency face two choices. First they decide whether to go to extraordinary lengths to obtain supplies or do nothing and shut down. Second, if they obtain supplies, do they reflect the full cost of gasoline in the price they charge and risk complaints and a state investigation, or absorb at least some of the additional expense?
While no economic logic forces a company going to extraordinary lengths to obtain supplies to pass through all costs in higher prices, it seems reasonable to believe that if it is possible to do so then more retailers are likely to do so. And, if more retailers go to extraordinary lengths to obtain supplies during emergencies, more retail customers will have a choice whether or not to buy gasoline than before and the larger local supplies should help limit the degree to which prices rise during the emergency.
Anti-price gouging laws, because they penalize some price increases during the emergency period, encourage retailers to shut down rather than risk a state investigation and the bad publicity of a price gouging complaint. The laws are making consumers worse off. (I’m dubbing this response the “Zwolinski effect”, after Matt Zwolinski’s “non-worseness claim” in his writings on the ethics of price gouging. See here and follow links.)