Price gouging is a term that refers to the practice of raising the price of goods, services, or commodities, to an unreasonable or unfair level. Such an increase in price is often a result of a sudden increase of demand and shortage of goods, such as in the event of a natural disaster or other crisis, and it is illegal in most jurisdictions. To explore this concept, consider the following price gouging definition.
Definition of Price Gouging
- The practice of raising prices on certain types of goods and services to an unfair level, especially during a state of emergency.
What is Price Gouging
Throughout history, enterprising people have recognized the advantage of having certain supplies or products, or being able to provide certain services, in times of upheaval. For instance, when a hurricane makes all of the water in a given area undrinkable, a shopkeeper who has a large supply of bottled water might make a very good profit. It is this taking advantage of a bad situation, raising prices for much-needed supplies or services to an unfair, or even unethical level, that is considered price gouging.
The most common items used in price gouging include food, water, gasoline, and medications. Services such as plumbing repair, heating repair, roofing repair, and other services desperately needed by many in a state of emergency, are also subject to price gouging. Price gouging is against the law, though the laws vary by state.
Example of Price Gouging in Natural Disaster
A hurricane is about to strike the coast of Alabama, and the power is expected to be out in many cities and towns up and down the coast. Packages of “C” batteries, which are commonly needed to power flashlights, emergency radios, and other devices, usually run about $5.00.
With so many people heading into local stores to stock up on emergency supplies, some merchants hoist their prices, charging $10.00 per package of “C” batteries. In this example of price gouging, the 100% increase in price during a declared emergency would be considered illegal in many states.
Price Gouging Laws
While many states have price gouging laws to protect consumers, there are no federal laws regulating this practice. Price gouging laws have, however, been held as constitutional, as law enforcement authorities and local governments have the authority to preserve order, and protect the common good during an emergency.
In most states with price gouging laws, the act is defined by the presence of three criteria:
- Emergency or Crisis Situation – applies to abrupt price increases during a time of disaster or other emergency
- Essential Items or Services – applies exclusively to items or services that are essential to survival
- Price Limit – sets a limit on the price that can be charged for essential goods or services
As of 2016, 34 states have enacted price gouging laws. A handful of states impose criminal charges on top of civil liability when a business is found guilty of price gouging, though most give prosecutors broad discretion whether to pursue such criminal charges. Penalties for price gouging also vary widely, depending on the jurisdiction.
People who support price gouging laws make the point that taking advantage of people during a disaster or crises is morally wrong, and that those guilty of the practice should face criminal charges. Those opposing such laws argue that, if consumers are willing to pay the price asked for goods or services, the business cannot be blamed.
Sampling of State Price Gouging Laws
|Alabama||Prohibits “unconscionable prices” for sale or rental of any commodities or rental facilities during a declared state of emergency.||$1,000 per violation, not to exceed $25,000 per 24 hour period|
|Arkansas||Prohibits “excessive and unjustified” increases in prices of essential consumer goods and services (including gasoline) during a federal, state, or local declared emergency or “red condition” declared by the federal or state Departments of Homeland Security.||Criminal penalties under Arkansas consumer protection statute|
|California||Prohibits sales of consumer goods and services (including fuel) at a price of more than 10% above the price charged for those goods and services immediately prior to a federal, state, or local declared emergency.||$2500 per violation plus injunction and/or restitution. Criminal penalties also available.|
|Connecticut||Prohibits price increases for any item during a federal or state declared disaster.||$5,000 per violation|
|D.C.||Prohibits charging “more than the normal average price” for any merchandise or service during a natural disaster or declared state of emergency.||$1000 maximum fine plus revocation of license and/or permit.|
|Idaho||Prohibits “excessive or exorbitant” prices for consumer fuel, food, pharmaceuticals, or water during a state declared emergency.||$5000 per violation plus restitution and injunctive relief|
|Kansas||Prohibits “unjustifiably” increasing prices for any necessary property or service during a time of disaster.||$10,000 per violation.
Increased by $5000 if committed against elderly or disabled
|Maine||Prohibits “profiteering in necessities.” Prohibits willful destruction or permitting preventable waste in the production, manufacture, storage or distribution of necessities with the intent to enhance the price or restrict the supply of necessities. Also prohibits any “unjust or unreasonable profit” in the sale or exchange of necessities, including any contract, combination, conspiracy, or aiding and/or abetting the same||Civil penalties of $10,000.
Criminal penalties available
Gas Price Gouging
One of the most needed and pricey commodities during a disaster or other state of emergency is gasoline. Gas price gouging remains a controversial practice, in which consumers face rapidly increasing prices at the pump, and wondering whether there will be some relief. Determining whether gas price gouging is taking place can be challenging, as there are many reasons gas prices increase. These include such occurrences as:
- Increased price of crude oil
- Increased cost of processing crude oil into gasoline
- Increased cost to transport fuel
- Increased federal, state, and local taxes
Information about the changing prices of gasoline, as well as other consumer issues, may be obtained by visiting USA.gov, a federal interagency effort to provide up-to-date information on a variety of issues.
Price Gouging During Actual Emergencies
Price gouging is most common during actual emergencies such as hurricanes, earthquakes, widespread fires, and other natural disasters. As the demand for certain items increases, sellers are more likely to engage in price gouging.
Gas Price Gouging in Oklahoma
In December, 2008, after the state of Oklahoma had been battered by a monstrous ice storm, convenience store and gas state owner Mohammed Mannan raised the price of gas at his pumps 60 cents per gallon. This was a clear violation of Oklahoma’s Emergency Price Stabilization Act, and Manna was charged with price gouging. By law, Mannan could have raised his gas prices as much as 10%, but his price hike amounted to about 22%.
Mannan pled no contest to three misdemeanor counts of price gouging, and was sentenced to a six month suspended sentence, given a $1,500 fine, plus court costs, and ordered to give a refund to all customers who had paid the inflated price.
Hotel Price Gouging in the Wake of Hurricane Sandy
Superstorm Sandy hit the East Coast of the United States on October 22, 2012 and it lasted over a week prompting the Governor of New Jersey to declare a state of emergency. Prior to the declaration of a state of emergency the Econo Lodge in Egg Harbor Township charged $79.99 per night for lodging in one of its rooms. On the day the state of emergency was declared, however, the hotel raised its rates to $199.99, an increase of 250%, keeping the inflated rate through November 5, 2015.
In December, the state began investigating complaints of price gouging in the wake of Sandy’s destruction. Investigators found the Econo Lodge to have committed 545 instances of price gouging, and filed an official complaint against its owners, Amy Hotels. In settlement, the owners agreed to pay $25,000 in refunds to wronged customers, the state attorney’s fees, and costs of the investigation.
Additionally, company would be held liable for any civil penalties resulting from successful civil lawsuits filed by customers. In total, 27 lawsuits were filed, 23 of which were resolved for a total payout of more than $1 million. New Jersey’s Attorney General made a statement, telling the press that they hoped the victory would deter other businesses from engaging in the practice of price gouging in the future.
Hurricane Sandy Gas Station Price Gouging
Before Hurricane Sandy hit the New Jersey coast in October 2012, the state’s governor declared a state of emergency, putting into motion emergency services in preparation for, rather than in response to, the storm. Immediately after the state of emergency had been declared, the owners of George’s Service Center in Clifton, New Jersey, raised the station’s price for gasoline by 34%. Another gas station, Lukoil in Piscataway, raised its gas prices by 17.5%.
When state investigators investigated complaints of the two companies’ hefty price increases, the Attorney General filed lawsuits against both. George’s Service Center was ordered to pay fines in the amount of $26,000, and Lukoil was ordered to pay $20,000. Both companies were also ordered to pay the state’s attorney fees, and held liable for civil penalties resulting from successful lawsuits filed by customers.
Related Legal Terms and Issues
- Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
- Criminal Charge – A formal accusation by a prosecuting authority that an individual has committed a crime.
- Defendant – Control or advantage held by one entity over the commercial market in any specific geographical region.
- Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
- Misdemeanor – A criminal offense less serious than a felony.