Are ‘outsiders’ more likely to be accused of price gouging?

Michael Giberson

Are price gouging laws applied fairly?

This past week Tropical Storm/Hurricane Isaac lead to disaster declarations and the invocation of price gouging laws in several gulf states. Here are a few selected quotes from all four price-gouging related press releases issued last week by Mississippi Attorney General Jim Hood:

  • August 28: “Attorney General Jim Hood is today enforcing the state’s price gouging laws as Mississippi prepares for Hurricane Isaac.”
  • August 29: “Kuldip Singh, 51, of Natchez was arrested at his business in Roxie around 6:30 tonight by investigators with the Consumer Protection Division of the Attorney General’s Office. Singh is accused of charging over his usual profit margin at the Roxie Truck Stop, which he owns. “
  • August 29: “Rajinder Singh, 50, of Madison, was arrested at his place of business in Jackson late today by investigators with the Consumer Protection Division of the Attorney General’s Office.  Singh is accused of price gouging during a disaster.”
  • August 31:

Two Vicksburg hotel operators have been arrested and charged with price gouging during a state of emergency, announced Attorney General Jim Hood today.

Investigators with the Mississippi Attorney General’s Office Consumer Protection Division, with the assistance of the Warren County Sheriff’s Office and the Vicksburg Police Department, arrested Devenora V. Patel, 56, and Hemel Ramesh Surati, 26, last night at their business, The Battlefield Inn in Vicksburg.

“The arrests were the result of tips from concerned citizens and a subsequent undercover investigation,” said Attorney General Jim Hood.

Two aspects of anti-price gouging laws raise concern that such laws will be enforced unevenly, to the detriment of minority groups. First, often the standards for a violation are somewhat vague. For example, laws use terms like “unreasonably excessive” without clarifying just when a price increase becomes too high, and merchants frequently can pass along some cost increases in higher prices while other cost increases are ignored. The flexibility involved in applying price gouging laws gives discretion to the state legal authorities involved in enforcing the laws, and such discretion is unlikely to be exercised in favor of minority groups.

Second, almost universally price gouging cases are initiated by consumer complaints and so depend upon a consumer’s initial feeling of having been taken advantage of. Given typical psychological biases that influence consumer fairness judgments, it is possible that essentially arbitrary factors affect which price increases become consumer complaints and therefore become subject to potential legal action.

Given these two factors, I think it is reasonable to expect that “out group” merchants, that is to say merchants who are of an obviously different ethic or racial background than the consumer, are much more likely to be subject to consumer price gouging complaints.

Now the mere fact that all four persons arrested for price gouging in Mississippi over the past week have names more typical of Indian heritage (Patel, Surati, and Singh twice) rather than names typical of deep roots in the South doesn’t prove anything. And I’m not aware of any systematic review of consumer price gouging complaints that considers merchant ethnicity or race that could provide a sturdier evidence on my hypothesis about bias. But I think the case is worth additional study.

In general I think price gouging laws are a bad idea, but if we have them they should not be enforced in ways that put a disproportionate burden on minority business owners.

NOTE: Much more price gouging commentary is available here at Knowledge Problem. Clink this link to see the list.

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