What is price ‘gouging,’ and can it be stopped?

28 state statutes
According to the Congressional Research Service, 28 states have emergency price-gouging statutes.

Some of them are based on a specific percentage increase in prices during an emergency compared to a non-emergency period.

Alabama law, for instance, deems it gouging if a business sells goods at a price that is 25 percent higher than the average price at which the same commodity was sold during the 30 days immediately prior to the state of emergency.

But in Florida, where state law on the books since 1992 uses the same “gross disparity” language that Cantwell uses in her bill, the law does not specify any percentage increase or dollar amount.

In one case settled last year, a Vero Beach, Fla., motel agreed to pay $75,000 for restitution and legal fees.

During the six-week period following Hurricane Frances, the motel’s daily rate for rooms increased 41 percent from the rate during the 30-day period preceding the storm. That was enough to qualify as “gross disparity” -– or at least the hotel attorneys decided they’d be better off settling rather than battling in court.

Since Attorney General Charlie Crist took office in 2002, the state has launched 72 formal investigations of alleged gouging and filed 15 lawsuits. “In 2004 and 2005, with each successive storm we saw fewer and fewer complaints about price gouging,” said Crist spokeswoman JoAnn Carrin. The law, she said, is having a deterrent effect. And its “gross disparity” standard was held constitutional in a recent test in a Florida court.

Is collusion required?
The Bush administration hasn’t indicated that it sees any need for a federal anti-gouging bill.

According to Al Hubbard, President Bush’s Assistant for Economic Policy, existing antitrust laws are sufficient to prevent price-fixing.

“We have very good anti-trust laws,” Hubbard told reporters Tuesday. “Those laws prevent collusion: companies getting together to regulate supply, to regulate pricing. Those laws prevent monopolistic pricing.”

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But Cantwell emphasizes that no conspiracy or collusion is necessary to meet her test of gouging.

“Part of our challenge has been that the current federal law always looks at collusive pricing activities. That's what the federal law now says. So we're not saying that Exxon and Shell all got together and set a price,” she said.

Asked about Cantwell’s bill last fall during Senate testimony, Federal Trade Commission chairman Deborah Platt Majoras warned that it could end up hurting consumers.

“If on a widespread scale we do not allow retailers to price to control for shortages, in other words, if we only look at their cost, their historic cost, and we don't allow them to look at the fact that they're about to run out of gasoline, then we will have shortages. We've seen it happen in the past,” said Majoras. “The last thing in the world our consumers need during an emergency is to not have access to any gasoline whatsoever.”

And federal appeals court judge Richard Posner, an expert on anti-trust law and a prolific author said on his blog last year in the wake of Hurricane Katrina that calls for anti-gouging laws reflect “sheer ignorance of basic economics (a failure of our educational system) and demagogic appeals by politicians to that ignorance.”

But he added that it was understandable that lawmakers would respond to calls for gouging legislation.

“In times of catastrophe, with consumers hurting, the spectacle of sellers benefiting from consumers' distress, while (it seems) deepening that distress by charging them high prices, is a source of profound resentment, and in a democratic society profound resentments trigger government intervention,” Posner said.

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