Not Helping out Due to Anti-price Gouging Laws

Michael Giberson

It looks like we may get through the 2009 hurricane season without any new evidence generated of the harm due to anti-price gouging legislation. The lack of a lot of hurricane damage is good, obviously (but I foresee that it may leave me bereft of new material for blogging on price gouging).

Wikipedia currently says, “So far this season ties for record low activity with 1982 for lowest number of hurricanes forming in a season.”  The two major hurricanes so far this year have had almost no effect on the oil and gas industry in the Gulf of Mexico and along the Gulf Coast, which means no supply disruptions, no price spikes, no declarations of emergencies, and no new price gouging complaints to be investigated by states.

Lacking new material, here is a quote from the Federal Trade Commission’s report on its investigation of price increases and price manipulation claims subsequent to Hurricanes Katrina and Rita in the late Summer of 2005:

Staff interviews with alleged price gouging retailers indicated that some of highest prices occurred when stations were running out of product, were uncertain about when they would be re-supplied or at what price, were trying to ration their dwindling inventory, or were trying to curtail panic buying. In addition, because unbranded stations saw their wholesale costs increase above those of branded stations, the retail prices of unbranded gasoline increased to high levels. One national retailer told staff that it closed its stations in Florida (which normally bought from a refiner at prices tied to a Platts spot market price) because the firm could not afford to re-supply the stations without either selling gasoline at a loss or risking that it would violate the state’s anti-gouging laws.

That last sentence indicates the harm created by anti-gouging laws. Gasoline consumers in the state would obviously be better off with more supply brought into the state rather than less, and with these stations offering gasoline at a high price rather than not offering gasoline at all.  The law impedes activities by gasoline retailers that would help gasoline consumers.

Apparently – despite the FTC’s extensive investigation, thorough analysis and detailed report, despite the logic and evidence presented by economists and others in other forums – many politicians, editorialists, and consumers continue to think anti-price gouging laws are good.

The interesting question: what evidence or argument could persuade open-minded proponents of anti-price gouging legislation to change their minds?

3 thoughts on “Not Helping out Due to Anti-price Gouging Laws

  1. I suspect the proponents’ motive is more to show sympathy with gas buyers than to really help them. In that case they’ll change their minds when enough people perceive anti-gouging laws as causing shortages rather than ameliorating them. This is not impossible; if a few of these shortages are conspicuously (e.g. on television) blamed on price-gouging laws, that might be enough.

  2. No evidence. High prices are seen as a universally easy thing to complain about. That price control legislation would continue to keep prices high or supplies low seems meaningless to someone looking for short term political advantage.

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