At the LegalMatch Law Blog, Sonya Ziaja editorializes in favor of laws against price gouging:
Natural forces are blind to what they destroy. People aren’t. In the past month, tornadoes and flooding in the South and Midwest left behind crippled lives, destroyed homes, and eviscerated infrastructure.
Now as the victims of the tornadoes try to rebuild, they are left vulnerable to another foe—people who use the disaster for economic gain by price-gouging.
Thankfully, there are legal protections against price-gouging in many states…. [The] price-gouging statutes allows the attorney’s general to investigate and prosecute instances of price-gouging once a state of emergency is declared.
After some discussion of the difficulty of defining price gouging precisely and the resulting differences in state laws, Ziaja asks a very good question: “How does any of this help the victims of natural disaster?”
Her answer sticks to the simple intended effect of the laws: “In theory, the threat of these consequences will deter potential price-gougers from profiting excessively from the misfortune of others.”
That line is a fine beginning to an answer, but unfortunately, is this case, it is also the end of the answer. The editorial moves on to other issues. What should come next is any evidence on whether the deterrence theory actually keeps people from profiting excessively, however that is defined. After all, first we should assess whether the law actual does the main thing it attempts to do. Following that one should look at whether the law has any unintended consequences, positive or negative, for victims of natural disasters.
On the issue of unintended consequences it seems clear that price gouging laws has negative effects for victims. The laws discourage efforts by merchants to bring useful goods into disaster-affected areas. Stores have been fined by the state after going to extraordinary efforts to bring electric generators into areas where an ice storm left millions of people without power. Gasoline retailers sometimes refuse to resupply at higher wholesale prices during declared emergencies, afraid they’ll be accused of price gouging. Victims of disasters are worse off if the laws reduce the resources available to them for recovery.
I’ll provide a few more details and analysis in a subsequent post on the consequences of price gouging laws. (The interested reader should also check out my price gouging article in Regulation magazine.)