Why Have 31 States Passed Anti-price Gouging Laws (and 19 Not)?

Michael Giberson

Cale Davis, in partial fulfillment of the requirements for the degree of Master of Science in Applied Economics at Montana State University, produced a thesis examining why some states do and others don’t have anti-price gouging laws. 

The abstract of “An Analysis of the Enactment of Anti-Price Gouging Laws“:

Anti-price gouging (APG) laws are state-level price controls only effective during times of emergency. From standard economic analysis, there are no apparent beneficiaries from price ceilings. Thus, the enactment of APG laws is puzzling from an economic perspective. The passage of APG laws is first analyzed with case studies of all thirty-one state laws. The case studies include information such as disasters that triggered the enactment of the laws, detail on enforcement and penalties, and information on supporters and opponents. This information is used to help determine why policymakers enact the laws. From the case studies, it is apparent that state officials devote significant resources to enforcing APG laws. Thus, it can be concluded that APG are not symbolic, toothless measures. A general lack of understanding of markets also appears to play a role in the laws’ enactments. Additionally, there are case studies of twelve states that do not currently have APG laws. In general, these states have either taken enforcement action without APG laws or considered an APG bill that ultimately failed. The enactment of the laws is also investigated with statistical models. The passage of APG laws is found to be associated with disaster variables like precipitation, hurricanes, and earthquakes. There is mixed evidence that poorer states are more likely to enact APG laws. More Democratic states are not more apt to adopt APG laws. Lastly, income dispersion and gas prices have no measurable effect on APG law passage.

The issue is understudied so this research makes a useful contribution to the economics literature. In fact, I don’t know of anything else quite like this research on price gouging policy.

3 thoughts on “Why Have 31 States Passed Anti-price Gouging Laws (and 19 Not)?

  1. Interesting. But I’d dispute the claim that the enactment of APG laws is “puzzling from an economic perspective” because “there are no apparent beneficiaries from price ceilings.” Regardless of the net benefits/costs of the policy when comparing surplus across all individuals, there are clearly quite a few beneficiaries: everyone who purchases the good at the lower price.

    Standard economic analysis shows that many individuals will benefit, and if supply is sufficiently inelastic relative to demand, total consumer surplus will increase as well. Thus it shouldn’t be surprising that price ceilings get passed: many people benefit from it!

  2. I was thinking more or less the same thing as libert, though I would point out that the supply-demand diagram you’re envisioning with consumer surplus increasing assumes allocative efficiency among buyers, which is particularly unlikely to hold here.

    On an ex ante basis there are fewer beneficiaries; you might have to be lucky to get the gasoline. It may be that people whose time is of particularly low value (to them) would benefit as a class if there is rationing by waiting. This brings up another objection to the consumer surplus assertion — depending again on how rationing is done, there may well be a fair amount of rent seeking involved.

  3. libert does hit on an interesting issue, and dWj hits on my what would be my response. Rotemberg makes a similar claim in a working paper on fair pricing, that is to say, support for the laws should be puzzling to economists. I recall his explanation is the the beneficiaries are dispersed and uncertain and the size of the benefit small, while the costs are focused on a smaller, organized group. Normal public choice economics suggests laws get passed when the benefits are concentrated and the costs are dispersed.

    Yes, some consumers expect to benefit ex ante, but in fact only those consumers able to secure gasoline (or hotel rooms, etc.) at the lower cost benefit and other consumers and suppliers are worse off.

    I would guess that the laws are passed more for their emotional appeal than for their economic effects.

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