Price Gouging: Perception Is Not Reality

Consumer complaints regarding alleged price gouging have been increasing as the COVID-19 pandemic continues. Generally, price gouging occurs when there unreasonable increase the price of a consumer good (or service) during a public emergency. Although we are facing a national emergency, except for a March 23, 2020, executive order issued by President Trump prohibiting hoarding and price gouging of certain critical supplies, there is no federal price gouging law. Although there are proposal pending in Congress to more broadly prohibit price gouging, currently, the issue is primarily governed by state law. Most, but not all, states affected by the pandemic have price gouging laws or orders, which typically provide that a consumer may file a complaint with the state’s consumer affairs department that then may be prosecuted (or otherwise resolved) by the state’s Office of the Attorney General.

While price gouging certainly has occurred during the pandemic, many complaints of alleged impermissible price gouging are based consumer misperception or misunderstanding about what is occurring in the market place, rather than profiteering. In other words, things aren’t always as they seem.

Supply and Demand

Before the outbreak, retailers would typically have had available a variety of options for a particular product or item, allowing the consumer to choose from a wide variety of quality, color, size and price options to select the product or item they wished to purchase .  With so many people sheltering at home, basic retail goods, such as toilet paper, paper towels, cleaning supplies and eggs, are in high demand and short supply.  Thus, consumers may no longer be able to find their preferred option available and that instead may have to choose a different, and sometimes more expensive, option. .Thus, for example, a consumer who may be accustomed to purchasing generic toilet paper that has sold out, may be constrained to buy a more expensive name brand. This is not price gouging; this is supply and demand.

Increased Wholesale Costs

Additionally, with so many goods in short supply and high demand, wholesale costs are rising, which in turn lead to increased retail costs. Take a commodity like eggs. The Washington Post  The Washington Post recently reported that the demand for eggs had increased 44% since a year ago, and that wholesale price of eggs had risen 180% since March 2020 for a variety of reasons.  Higher wholesale costs naturally lead to higher retail costs. Generally, speaking it is permissible for a retailer to reflect its cost of goods in the price that it charges consumers.  Consequently, it is not surprising that many consumers are finding that the retail cost for eggs has increased.

Scaled Back Promotions

Finally, faced with inventory shortages and personnel shortages, retailers are also having to scale back on promotions, such as reduced price sales. While consumers may be accustomed to regular or weekly sales, discontinuing a regular practice does not translate to being price gouging. The promotions make no sense if the retailer cannot be certain it can obtain the promotional items or obtain the items in sufficient quantities to satisfy consumer demand.  Indeed, running such a promotion would only increase consumer frustration or lead to a complaint when the consumer arrives at the store and sees that the limited supply of sale items is not on the shelves.

Conclusion

Price gouging and profiteering are fairly obvious: unreasonably increasing prices to take advantage of consumers during a state of emergency. But not every price increase constitutes price gouging.

(This post originally appeared on the Workforce Bulletin Blog)