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 Release; CNN.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,
and Mark Kleiman)
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
consumers.”
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
tricky, but the notion that “price-gouging can’t exist” is silly
semantics.
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.
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.
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.
November 16, 2005
price-gouging: the ftc doesn’t convince me
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