Price gouging
Price gouging is a pejorative term for the practice of increasing the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair by some. This commonly applies to price increases of basic necessities after natural disasters. Usually, this event occurs after a demand or supply shock. The term can also be used to refer to profits obtained by practices inconsistent with a competitive free market, or to windfall profits. In some jurisdictions of the United States during civil emergencies, price gouging is a specific crime. Price gouging is considered by some to be exploitative and unethical and by others to be a simple result of supply and demand.
Price gouging is similar to profiteering but can be distinguished by being short-term and localized and by being restricted to essentials such as food, clothing, shelter, medicine, and equipment needed to preserve life and property. In jurisdictions where there is no such crime, the term may still be used to pressure firms to refrain from such behavior. The term is used directly in laws and regulations in the United States and Canada, but legislation exists internationally with similar regulatory purpose under existing competition laws.
It is sometimes used to refer to practices of a coercive monopoly that prices above the market rate by deliberately curtailing production. Alternatively, it may refer to suppliers' benefiting to excess from a short-term change in the demand curve.
Price gouging became highly prevalent in news media in the wake of the COVID-19 pandemic, when state price gouging regulations went into effect due to the national emergency. The rise in public discourse was associated with increased shortages related to the COVID-19 pandemic. The resulting inflation after the pandemic has also been blamed, at least in part, by some on price gouging. During the pandemic, the idea of "greedflation" or "seller's inflation" also moved out of the progressive economics fringe by 2023 to be embraced by some mainstream economists, policymakers and business press.
Laws against price gouging
United States
As of March 2021, Proskauer Rose counted 42 states that have emergency regulations or price-gouging statutes. Price-gouging is often defined in terms of the three criteria listed below:- Period of emergency: The majority of laws apply only to price shifts during a declared state of emergency or disaster.
- Necessary items: Most laws apply exclusively to items essential to survival, such as food, water, and housing.
- Price ceilings: Laws limit the maximum price that can be charged for given goods.
When the law goes into effect
Statutory prohibitions on price gouging become effective once a state of emergency has been declared. States have legislated different requirements for who must declare a state of emergency for the law to go into effect. Some state statutes that prohibit price gouging—including those of Alabama, Florida, Mississippi, and Ohio—prohibit price increases only once the President of the United States or the state's governor has declared a state of emergency in the impacted region. California permits emergency proclamations by officials, boards, and other governing bodies of cities and counties to trigger the state's price gouging law.What the law prohibits
State laws vary on what price increases are permitted during a declared disaster. California has set a 10 percent ceiling on price increases. The law includes exceptions for price increases that can be justified in terms of the increased cost of supply, transportation, demand, or storage. Florida prohibits a price increase "that grossly exceeds the average price" of that same item in the 30 days leading up to the emergency declaration. Alabama state law does not define what constitutes a "gross disparity", making it difficult for either affected residents or law enforcement to determine when price gouging has occurred, while others merely limit vendors and landlords to price increases of less than 25 percent.Enforcement
Enforcement of anti-price gouging statutes can be difficult because of the exceptions often contained within the statutes and the lack of oversight mechanisms. Statutes generally give wide discretion not to prosecute. In 2004, Florida determined that one-third of complaints were unfounded, and a large fraction of the remainder was handled by consent decrees, rather than prosecution.California
California Penal Code 396 prohibits price gouging, generally defined as anything greater than a 10 percent increase in price on items such as rent, hotel lodging, gasoline, food, and other essentials, once a state of emergency has been declared. Unlike other states that require the President of the United States or the state's governor to declare a state of emergency, California allows emergency proclamations by officials, boards, and other governing bodies of cities and counties to trigger C.P.C. § 396. The prohibition lasts for up to 30 days at a time and may be renewed as necessary.In the wake of the 2017 California wildfires and the 2018 California wildfires, Governor Jerry Brown repeatedly extended the price-gouging ban for impacted counties. One of his last acts as governor was to extend the prohibitions until May 31, 2019.
Until 2018, the state had no limitations on the rent that could be charged for housing that was not on the market until after a disaster. Due to complaints from the district attorney that she could not prosecute high priced new rentals which came on the market after the Tubbs Fire, the legislature amended C.P.C. § 396.
The above 2018 price gouging law makes it illegal to offer a previously unrented property for more than about $10,000 per month during an emergency. It also prohibits landlords from increasing rent prices by more than 10% when an emergency is declared. Landlords are also prohibited from accepting fees above this amount even if the tenant submits an offer well above the asking price. In the wake of the January 2025 Palisades Fire, this price cap has made it harder for displaced people to find housing, because many comparable properties normally rent for more than this, and this rent cap discourages owners of high-end vacation homes from making their homes available for rent. One expert estimated that hundreds to thousands more homes might be available for rent if this rent cap did not exist.
Florida
"state of emergency" law criminalizes price gouging. A supplier of essential goods and services may be charged when it sharply raises prices in anticipation of or during a civil emergency or when it cancels or dishonors contracts in order to take advantage of an increase in prices related to such an emergency. The model case is a retailer who increases the price of existing stocks of milk and bread when a hurricane is imminent. Though the effect of such laws have been proven to actually increase the risk of extreme shortages since the absence of increased prices replaces higher prices with an incentive for the earliest person to market to obtain all of a product about to imminently experience a period of very high demand.In Florida, it is a defense to show that the price increase mostly reflects increased costs, such as running an emergency generator or hazard pay for workers, while California places a ten percent cap on any increases.
United Kingdom
Laws and regulations in the United Kingdom do not use the phrase "price gouging" in consumer protection regulation but are similar to U.S. laws. Chapter II of the UK Competition Act 1998 prohibits businesses with market dominance from engaging in "abusive" conduct, including "unfair" pricing. Market dominance is considered when a business has greater than 40% of the market share within their respective industry. In the case of a violation of Chapter II, a business can be forced to pay up to 10% of global revenues.European Union
Similar to UK regulations, the EU does not include "price gouging" explicitly in regulation. Article 102 of the Treaty on the Functioning of the European Union is "aimed at preventing undertakings who hold a dominant position in a market from abusing that position." As stated, "such abuse may, in particular, consist in: directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions..." In 2016, the EU Commissioner for Competition Margrethe Vestager stated that the EU Commission will "intervene directly to correct excessively high prices" specifically within the gas industry, pharmaceutical industry and in cases of abuse of standard-essential patents.Price gouging and COVID-19
On March 13, 2020, a national emergency was declared in the United States by President Trump in response to the outbreak of the COVID-19 pandemic; the declaration allowed for an initial $50 billion to be used to support states. As studied by the National Institutes of Health, the COVID-19 pandemic induced a panic as mandates were put in place for Americans to stay at home, quarantine, and wear masks. The declared COVID-19 emergency made state-level price gouging laws and regulations go into effect. Demand for certain products increased while supply decreased. Such products in short supply included surgical masks, N95 respirators, hand sanitizer, and toilet paper. More than 30 states' attorneys general urged Facebook, Amazon, Craigslist, eBay, and Walmart to restrict the selling of necessary products at "unconscionable" prices.Effects of anti–price gouging laws during COVID-19
Scholars have studied the economic impact of anti-price gouging law during the COVID-19 pandemic. Based on the analysis of Chakraborti in 2023, he argues that strictly implementing price control may result in products shortages, since the law prohibits price increasing from adapting to demand increasing. In several states, incentives for suppliers to expand production and relocate products to high demanding areas are reduced due to the limit of price increasing, further resulting in empty shelves and longer replenishment times.The research has concluded that although the law aims to protect consumers, during the time that supply chains are highly strained, it could produce unintended consequences.