Profiteering (business)
Profiteering refers to the practice of charging excessively high prices for necessary products or services, primarily to enhance a business's profits. This unethical behavior can arise during emergencies or crises, where demand for essentials surges, allowing profiteers to exploit consumers by setting inflated prices. Historical instances of profiteering can be traced back to the American Revolutionary War, where merchants hoarded goods to increase demand, and it became prevalent again during World War I. In modern contexts, such as the COVID-19 pandemic, individuals and companies have been known to stockpile essential supplies like hand sanitizer and then sell them at exorbitant rates, taking advantage of desperate customers. Collaborative price-setting among businesses, aiming to maintain high prices, is another aspect of profiteering that reduces consumer choices. While considered unethical, profiteering is often illegal, with various laws enacted to prevent it. For example, the U.S. has regulations that specifically address unjust pricing practices during wartime and in general consumer markets. Overall, the concept of profiteering raises significant ethical concerns regarding fairness and responsibility in business practices.
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Profiteering (business)
Profiteering is the practice of charging an excessive, unfair amount for a necessary product or service for the sole purpose of increasing a business’s profit. Profiteers take advantage of customers. Some profiteers collaborate with others selling the same product or service to set the same high price for all their businesses, leaving customers no choice but to pay high prices. It often becomes an issue during emergency or crisis situations, such as a natural disaster or war. During such crises, this practice is also known as price gouging. Profiteering is considered an unethical business practice and is illegal in many areas.
Overview
A profit is the amount of money made on the sale of a good or service beyond what it costs to make, acquire, and sell it. For example, a grocery store owner’s profit is the money left after paying for the items sold, the store staff salaries and benefits, the operating costs for the building, and related costs such as grocery bags, advertising, etc. The profit is the owner’s compensation for establishing and running the business, and each property owner sets prices to make a reasonable profit.
The term profiteering originated in the late eighteenth century to refer to the practice of charging an excessive amount for goods or services. During the American Revolutionary War (1775–1783), some merchants were accused of profiteering because they hoarded items in short supply to increase demand for them. This allowed them to charge higher prices. The term mostly fell out of regular use until the early twentieth century when profiteering became more common during World War I (1914–1918).
Profiteering takes several different forms, but always involves taking advantage of consumer need or desire for a product to artificially increase prices. For instance, when a severe storm is forecast, consumer demand for things to prepare for bad weather increase. In the aftermath of a storm, such as a hurricane, things like water, food, ice, gas, and other essentials may be limited. Profiteers greatly increase the prices of these things, forcing people to pay far more for them than normal, simply to make an excessive profit.
In some cases, profiteers even create the shortage by buying up available supplies at lower prices. They then resell them to desperate customers at an exorbitant price. Profiteering of this sort occurred during the early days of the COVID-19 pandemic, when people hoarded large quantities of hand sanitizer, N-95 masks, toilet paper, and other supplies for the sole purpose of selling them at a high price.
Companies collaborating to raise their prices on goods or services is another form of profiteering. They force consumers to either pay higher prices, or do without. While profiteering is always considered unethical, it is often also illegal. Governments at the national and state levels have passed laws making it illegal to profiteer in various circumstances. For example, in the United States, the 2008 Consumer Protection from Unfair Trading Regulations makes some profiteering practices illegal. The 2007 War Profiteering Prevention Act limits the ability of companies to take advantage of wartime to profit by charging more for things needed for military efforts, a common form of profiteering. Furthermore, most states have specific laws against profiteering and price gouging. For example, the state of California passed the California Gas Price Gouging and Transparency Law in 2023 to prohibit exorbitant prices at the gas pump.
Bibliography
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“Profiteering and Price Gouging during Disasters.” Queensland Government, 23 Oct. 2023, www.qld.gov.au/law/laws-regulated-industries-and-accountability/queensland-laws-and-regulations/fair-trading-services-programs-and-resources/fair-trading-latest-news/disaster-advice/profiteering-price-gouging. Accessed 10 Jan. 2025.
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“What Is Profiteering?” Law Offices of Todd M. Friedman, 20 May 2020, www.toddflaw.com/blog/what-is-profiteering/. Accessed 10 Jan. 2025.