This item is a little more on the legal side of things than PG usually includes in TPV, but he thought it might be of interest to those who don’t know about various state price-gouging laws.
From LexBlog:
At the time of publication, at least twenty four states, plus Washington D.C. have declared states of emergency related to the novel coronavirus (“COVID-19”), with that number growing by the hour. In addition to making more resources available to residents, in many cases, the declarations also trigger additional protections to consumers in the form of anti-price gouging laws. These laws, which automatically go into effect, are intended to prevent merchants from significantly increasing the cost of consumer goods and services during a crisis.
For instance, in New Jersey a ten percent (10%) price increase during an emergency would be unlawful under most circumstances. In Pennsylvania, there is an assumption that a twenty percent (20%) increase is unlawful, but lower price increases could be deemed unlawful depending on the circumstances.
Even in states without anti-price gouging laws, the declaration of a state of emergency can result in emergency legislation. For example, Maryland does not currently have an anti-price gouging law in effect, but shortly after the Governor declared a state of emergency, both houses of the General Assembly introduced legislation aimed at limiting increases in consumer goods and services during the emergency to no more than ten percent (10%).
The particulars of the laws vary with each state. Some states set a percentage above which the merchant cannot increase the price. Others simply state the price increase cannot be “unconscionable.” Some laws apply to any party in the distribution chain, whereas others make allowances for increases if the party is simply passing along its own increased cost. As a result of the differences, ensuring compliance with these laws can be challenging for businesses that provide consumer goods and services in different states, as a one-size-fits all approach will likely not work. Violations can range from hundreds to tens of thousands of dollars in penalties, injunctions, lawsuits, criminal penalties and/or other measures.
Link to the rest at LexBlog
PG will note that it is not unusual for a merchant’s cost of goods or of doing business to increase during an event that will trigger a state of emergency declaration by a government official.
In the event of a hurricane, for example, a store may run out of certain types of goods as many more customers than usual purchase certain items such as protective tarps or plywood to board up windows.
Under such conditions, the cost of goods for the merchant may increase substantially due to shortages of supply at wholesalers, road closures that make transportation of goods more expensive, higher demand from locations that have already suffered damage from the hurricane, etc.
Depending upon the wording and judicial interpretation of price-gouging laws, it may not be worth the trouble and expense for the merchant to make extraordinary efforts or pay higher costs in order to keep products in stock. Indeed, if there is a potential legal penalty for a pricing misstep, the merchant might make a financial decision to just close its doors or to not restock until after the emergency passes.
Needless to say, if a hurricane is on the way, a merchant might find that her/his/its attorney’s office is close and not accepting calls.
I don’t know how these laws apply to producers, especially when producers send their goods across state lines to retailers. Typically, when demand increases, price increases, triggering additional production. That’s what prompts the production of more of the good.
When the producer is flooded with orders, he often can produce more, but at an increasing marginal cost. And that results in higher prices to the retailer. So, there is always a lively discussion on how to increase supply without increasing price.
Retailers can often be caught in a squeeze. It costs producers more to increase production, and they increase price to the retailer. But, the retailer can’t increase price to consumers. Potential for the retailer to simply not order more.
Ever wonder how areas hit by natural disaster get flooded with utility repair crews? Many are indeed from other utilities acting under a mutual protection plan. But, many are independent guys with a bucket truck and supplies. They normally work for their local utility. They go a thousand miles because they get paid a lot more than normal. Don’t pay more, and they stay home.