Judge Says Kentucky’s Anti-Price Gouging Law is Constitutional; Virginia Newspaper Says “Legalize It”

Michael Giberson

Over two years ago, the state of Kentucky filed suit against Marathon Oil claiming the company engaged in price gouging in the wake of Hurricanes Katrina and Rita. (Cynics noted that the lawsuit was filed shortly before a primary election in which the Attorney General at the time was running for Lt. Governor.)  Marathon has argued that the Kentucky anti-price gouging law is unconstitutional because it violates the due process clause of the 14th amendment, because it allows too much discretion by the administrative branch of the state government, and because it impedes interstate commerce.

A state district judge has ruled that the state’s anti-price gouging law is constitutional, and therefore the state’s case against Marathon can go forward. (Marathon tried and failed to move the case into the federal courts.)

Meanwhile, in Virginia, about a month ago the state Attorney General’s office announced legal action against one Salem, Virginia gasoline station and settlements with two others arising from post-Hurricane Ike gasoline price increases.

Virginia’s Price Gouging Act, which requires a declared state of emergency to activate, went into effect July 1, 2004. Since then, the Attorney General’s Office has sued eight gas stations (three after Hurricane Katrina and five after Hurricane Ike). Today’s action against Main Street Citgo in Salem is the first where an agreed settlement, known as an Assurance of Voluntary Compliance, was not filed at the same time.

The settling stations are required to set aside money for consumer restitution. They also have agreed to make contributions to the American Red Cross Disaster Relief Fund, in lieu of paying civil penalties.

The Richmond Times-Dispatch responded recently with an editorial urging repeal of the anti-price gouging law:

Hurricane Ike caused disruptions in the supply of gasoline. For that reason, [Virginia Gov. Tim] Kaine suspended rules that normally require the selling of certain types of specially reformulated gasoline blends — thereby enabling retailers to sell blends they would not have been able to at the time. The decision amounts to an implicit admission that supplies of reformulated blends were running short.

Demand also was soaring. News reports related tales of “panic buying” as “motorists began topping off their tanks and filled cans of gasoline for their personal reserves.” Many stations ran out of gasoline, as WSLS-10 reported on Sept. 15, 2008: “Ike sent prices soaring and put people in a frenzy. In fact, the Pure gas station on Franklin Road is one of the many stations in our area that ran out of regular unleaded gas….”

When demand greatly exceeds supply, either prices go up or shortages occur. Unlike the stations mentioned above, the Bucko’s Pantry[*] stations that briefly jacked up prices to stem the panic buying did not run out of gasoline.

Prices are signals. Sharply higher prices send the message that consumers should buy no more than they need, so that some of the limited supply will be available to others. They are an efficient means to say: No hoarding. Indeed, emergencies are precisely the times when price spikes ought to be expected. It’s time Virginia repealed its irrational price-gouging law — and gave the lawyers charged with enforcing it more productive work to do.

[* Bucko’s Pantry had settled with the AG in response to charges of price gouging earlier in the year.]

[HT to Matt Zwolinski]