f/k/a archives . . . real opinions & real haiku

November 16, 2005

price-gouging: the ftc doesn’t convince me

Filed under: pre-06-2006 — David Giacalone @ 3:30 pm

While I was in Washington in a hypo-blogging mode, the FTC told a

Senate committee that “Federal Price Gouging Laws Would ‘Unne-

cessarily Hurt Consumers’.” (FTC Press ReleaseCNN.com,

FTC against price-gouging law,” Nov. 9, 2006)  To my surprise,

many of the weblogerati who had opined so loudly on this topic

in September and October were silent last week. (for example,

Steve Bainbridge, Dave Hoffman, Dale Oesterle, Max Sawickly,

and Mark Kleiman)


gas pump g


In her Statement to the Committee, Deborah Plattt Majoras cautioned,

“that a full understanding of pricing practices before and since Katrina

may not lead to a conclusion that a federal prohibition on ‘price gouging’

is appropriate. . . .  [P]rice gouging laws that have the effect of controlling

prices likely will do consumers more harm than good . . . While no con-

sumers like price increases, in fact, price increases lower demand and help

make the shortage shorter-lived than it otherwise would have been.”  Majoras

added that “Enforcement of the antitrust laws is the better way to protect


tiny check Noting that at least 28 states currently have statutes that address

short-term price spikes in the aftermath of a disaster, the FTC advised

that enforcement of any federal anti-“gouging” law  – “should be left up

to the states, based on their proximity to retail outlets and their ability

to react quickly to consumer complaints on the local level.”

I believe that I understand the economic arguments made by those against

price-gouging bans, but I’m not at all sure that they settle the issue.

1. Arguments about the effects of long-term price regulation

are simply not very helpful when talking about the immediate

reaction to a natural disaster and the short period of panic and

urgency that follows;


2. Defining it for the purposes of a statute or regulation may be dictionaryN
tricky, but the notion that “price-gouging can’t exist” is silly



3. The public and its representatives have every right to declare

a particular economic activity to be anti-social and unlawful in

the context of a state of emergency.  Such laws, backed with

effective enforcement and publicity, surely do help to reduce

a practice that often serves to increase panic and paranoia, 

and decrease morale in a time when public-spirited cooperation

is vital.


4.  MaxSpeaks answers those who say that attempts at price-

gouging cannot last for long in a competitive market.  We, of

course, do not require the successful exercise of market power

in other price-manipulation contexts (such as price-fixing

and boycott conspiracies).   The short-term, opportunistic

nature of many instances of price spiking in emergencies would

seem to suggest that the many virtues claimed for the practice

in theory are merely fig-leafs to cover a particularly anti-social

instance of greed.


fill gas


5. Like Dave Hoffman, “I dislike folks who intentionally profit on

others’ misfortune.”   Many of the neo-conservative opponents

of price-gouging bans are often, in other contexts, more than

willing to legislate morality.   It’s a cliche to ask “What would

Jesus Do?”, but I’m darn certain I know the answer.


half a tank —

Old Glory in tatters

above the gas pump



              (hat tip to elizabeth macfarland)


Irony? In researching this piece, I discovered another Bainbridge weblog

that has discussed price-gouging.  At Talk About Bainbridge Georgia 

I learned that a lot of folks were quite unhappy with the local gasoline

prices after Katrina — especially those of their hometown company,

Southwest Georgia Oil Co, which operates SunStops stations and

distributes its private brand of Inland gasoline. Southwest Georgia Oil

was accused of price-gouging by the Florida state consumer services

commissioner on October 27, 2005.  The Inland homepage states:

“Southwest Georgia Oil and Inland’s mission statement is,

‘Outrageous Customer Service,’ and our goal is to provide

outrageous customer service to employee customers and

external customers alike.”

Outrageous in deed. 


update (8 PM): Prof. David Hoffman‘s response to this post at

Concurring Opinions made me realize that I need to clarifiy

a point or two.  So, I left Dave this Comment:

Dave [Hoffman], I agree that there is no urgent need

for federal legislation — unless someone on that level

comes up with an especially workable definition that

can be uniformly applied across the nation.


As with most opponents, the crux of the FTC Statement

went to ALL price-gouging laws, so the remarks at my

weblog are aimed at the general opposition. As a former

FTC antitrust lawyer, I surely agree with Chairman Majoras

that we need continuing close scrutiny of the petroleum

industry, and effective antitrust enforcement, should price

or supply manipulations be discovered that unreasonably

restrain trade in any important product in the wake of natural

or manmade disasters.

                                                                                                                          gas pump n


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