Price Gouging Defined: Looking for Family Resemblences

Michael Giberson

A range of recent news stories report on price gouging, but the wide variety of cases in which the term “price gouging” gets invoked raises the question of what actually is price gouging. About all that these cases have in common is a price for a good higher than some other price used as comparison.

Examples: bottled water and hotel room prices in Calgary after flooding; hotel room prices in Atlantic City during a rock festival; gasoline prices in Kincardine, Ontario higher than neighboring towns; software prices in New Zealand higher than in the United States; electric power prices higher in Australia after imposition of a carbon tax; prices of bottled water and other goods not labelled in small shops in Saudi Arabia; ammunition in the United States after the political response to the Sandy Hook shootings. A lack of anticipated price gouging reported on the debut of a new Android-based game console, OUYA.

But prices will be varied and constantly changing in any dynamic economic environment, so there will nearly always be some lower price somewhere to be invoked in comparison. Not all of these “some lower price somewhere” possibilities suggest price gouging. The common “essence” here is too weak to provide a clean definition.

I think, rather, the way to define price gouging is similar to the way Denis Dutton defined “art” in The Art Instinct: first identify a clear prototypical example, then consider degrees of similarities and differences between the prototype and any case under consideration. That is to say, identify a prototype then look for “family resemblances.” (For a complementary and more thorough look at language use and natural categories see George Lakoff’s book, Women, Fire, and Dangerous Things.)

For our prototypical case of price gouging I think we need (1) a potential customer under stress, (2) a seller offering a good the customer wants for a reason somehow related to whatever is causing the stress, and (3) the potential customer expecting a significantly lower price than the seller offers based on prices for the same or similar goods offered at some recent time or nearby place. Whatever one feels about the ethics, economics, or proper public policy toward price gouging, we can probably all agree that the prototype is a good example of what is meant by the term “price gouging.”

Among the examples listed above, hotel rooms in Calgary match the prototype pretty well: prices at a Travelodge jumped from C$109 to C$190 because, as a hotel employee reportedly said, “busy because of the flood.” (Travelodge has since apologized for the “error” on Facebook and adjusted rates to one “more reflective of the time of year and occupancy of the hotel.”) I’d call it price gouging and get on about the business of debating the ethics, economics, and public policy issues raised.

On the other hand, gasoline consumers in Kincardine, Ontario are not under any special stress in their everyday gasoline purchases. Higher gasoline prices may reflect higher store costs or, as suggested in the article, a low interest in price competition among the small number of suppliers in town. Similarly, software purchasers in New Zealand are not under any emergency or short term duress when faced with higher-than-U.S. prices on many Microsoft and Adobe products. These cases seem to be mere distant cousins to price gouging. While there does seem to be a family resemblance to “real” price gouging (i.e. to prototypical cases), it is a distant resemblance. Rather than casting the cases as price gouging, some other frame of analysis seems more appropriate.

Since we are dealing with prototypical examples and family resemblances in defining price gouging, and not with logical abstractions with essences, we have to be content with obviously-is cases and obviously-not cases and lots of shades of gray between.

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