Price gouging
Price gouging is the practice of charging consumers excessively high prices for goods or services, typically during periods of crisis or disruption when supply is limited, and demand is elevated. This phenomenon often occurs in the wake of natural disasters, pandemics, or other emergencies, when consumers may have no choice but to purchase essential items at inflated prices. While market forces generally maintain a balance between supply and demand, significant disruptions can tilt this balance in favor of sellers, allowing for unfair pricing strategies.
Though some states have enacted laws to combat price gouging, particularly during emergencies, these regulations vary widely and are not uniformly enforced across the country. For instance, notable cases of price gouging during the COVID-19 pandemic included essential items like hand sanitizer and masks, highlighting the vulnerability of consumers in times of need. The increase in prices for life-saving medications, such as EpiPens, illustrates how price gouging can affect individuals who cannot opt out of purchasing critical health supplies.
The debate surrounding price gouging often raises questions about the ethics of market practices and the role of government regulation, with some arguing for stricter controls to protect consumers, while others caution against heavy intervention that could have adverse economic effects. Overall, price gouging remains a contentious issue, reflecting the complexities of supply and demand dynamics in a capitalist economy.
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Price gouging
Price gouging refers to charging consumers an unfairly high price for a commodity. In most cases, price gouging is prevented by the power balance between consumers and sellers within a given economy, meaning that consumers will not buy something if the price is too high. However, when the market is disrupted, or a commodity is something that a consumer must purchase, the power balance shifts in favor of the seller, which may enable the seller to force buyers to pay an unfairly high price for a product.
There is no set amount by which a price must be increased to be considered price gouging. Several states have passed laws against price gouging in the event of a natural disaster or an emergency. However, in many areas, price gouging remains a legal economic interaction. Though it can sometimes be prevented by government intervention or regulation, many governments worry that interfering too heavily in a market economy could have negative side effects.
Background
In a capitalist economy, people exchange objects of monetary value for goods and services. Though the government may use various tools to influence the prices of goods, it does not directly set the prices of any specific commodities. Instead, buyers and sellers work together to find a price that is considered agreeable to both parties. If sellers demand too high a price, buyers will be unwilling to purchase their goods, leaving them without the funds necessary to keep their business in operation. If buyers demand a price that is too low, sellers will be unable to profit, stifling the production of future goods. Because of this, compromise between buyers and sellers is necessary for the economy to continue to function.
The supply and demand of goods influences prices. Supply refers to the amount of a product available to sell, while demand is the number of customers who want to purchase a product. If both supply and demand remain stable, the price of a product remains stable. However, if demand exceeds the available supply, prices rise. Because many buyers exist for a smaller quantity of product, sellers can charge higher prices, increasing their profits. On the other hand, if supply increases beyond the demand of the market, sellers must lower prices to encourage more people to purchase their goods.
Many businesses intentionally utilize supply and demand to control the price of goods. For example, they may restrict the supply of a product available to a given market, even if they hold additional inventory that could be made available for sale. This keeps supply lower than demand, allowing the business to charge higher prices for its product. Supply may also be affected by external events, such as a drought reducing the available supply of food in a region and increasing prices.
Some economists argue that the principles of commerce should not be allowed to freely decide the price of essential goods. For example, people cannot decline to pay for medical services or power for their homes. This removes the buyer’s ability to negotiate, allowing the seller to charge exorbitant prices. However, other economists argue that the market will eventually self-regulate regardless, and too much government intervention in the economy can lead to unexpected negative side effects.
Overview
Price gouging refers to sellers increasing prices to unfair levels. This is attractive to businesses, as it allows them to reap larger profit margins. However, when a market is functioning properly, the consumer’s ability to decline to purchase a specific commodity stops companies from engaging in such practices.
When the market is disrupted and the ratio between supply and demand is suddenly changed, many consumers lose their ability to decline to purchase goods. Markets can be disrupted in a variety of ways. Natural disasters, wars, manufacturing problems, and shipping delays can all create significant disruptions in an economy. Though the market may eventually self-regulate, these disruptions allow companies to charge unfair prices to consumers until the balance is restored.
The COVID-19 pandemic created opportunities for price gouging. Many people were required to quarantine or work from home during the pandemic. This made it difficult or impossible to manufacture goods, resulting in a sudden drop in the available supply of many products. Some businesses instituted restrictions on the necessary household supplies people could purchase to stop price gouging. However, in many areas, small numbers of people purchased much of the available supply of cleaning products. They could then resell those products at significantly higher prices, forcing consumers to either purchase the goods at an inflated price or go without. Other products subject to price gouging during the pandemic included masks, hand sanitizer, and COVID testing kits.
The increase in the cost of the epinephrine autoinjector (EpiPen) during the 2010s is an example of price gouging. EpiPens provide life-saving medication for people who suffer from severe allergies, drastically increasing an individual’s odds of survival during anaphylactic shock. Because of this, the pens are routinely carried by people who suffer from severe allergies, such as from bee stings. EpiPens are also kept in schools, hospitals, ambulances, and urgent care centers.
Though it costs little to produce an EpiPen, the price per pen rapidly increased. In 2009, the price of a single EpiPen was roughly $103. By 2024, the price had risen to between $650 and $700. However, because refusing to purchase an EpiPen may result in death, consumers were forced to pay the inflated price. Many states, such as Illinois and Colorado, have since passed laws capping the price of EpiPen's for their citizens.
Some governments have acted against price gouging in other circumstances. For example, some states have outlawed price gouging during a natural disaster or an emergency, limiting how much businesses can raise prices during such situations. This is a reaction to events like price gouging on bottled water that happened after Hurricane Katrina in 2005. Still, these laws are inconsistent across states and do not exist in all areas because some governments refuse to interfere with the tendencies of the market.
Bibliography
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