The term “price gouging” occasionally trickles into the American personal finance conversation. Some of us remember when $40 Tickle Me Elmo dolls sold for $100, and Sony Playstation 3 systems went for as much as $20,000 on eBay. Supply was low, but demand was sky high, making it easy for those who were inclined to price gouge to rake in the dough. And, of course, there are times of local or national emergency when everyday supplies, like bottled water, hand sanitizer, and toilet paper, are hoarded and sold at such a high markup that families are forced to draw from emergency savings accounts to pay for necessities.
But how can you tell when price gouging is taking place, and how can you tell the difference between gouging and inflation?
How you can identify the problem
The American Bar Association describes price gouging as the practice of raising the price of goods or commodities to an unreasonable, unfair, or excessive level, particularly during a declared state of emergency.
But it can be tricky to tell the difference between price gouging and inflation. In a nutshell, here’s how the two differ:
- Inflation is a general increase in prices caused by ordinary economic factors like demand and supply over time. When demand is higher than supply, prices naturally rise. When supply is higher than demand, prices fall. It’s a natural occurrence.
- Price gouging is opportunistic. It frequently occurs on a smaller scale and often during a time when consumers have no option but to purchase a product at a much higher price. For example, if your area has just been hit by a hurricane and the only bottled water you can find for your family is being sold for 20 times the regular price, that’s price gouging.
The U.S. Public Interest Research Group (US-PIRG) says, “Businesses are allowed to increase prices, but they are not allowed to raise the price of products excessively to take advantage of a current crisis. While laws vary by state, increases exceeding 20% may be considered price gouging.”
Sometimes inflation is just inflation
As mentioned, inflation occurs naturally in the economy. Let’s say home builders suddenly have to pay 30% more for a necessary supply, like lumber. Rather than eating the loss themselves, the price of building a home will likely increase. If a company making sports jerseys is hit with a higher licensing fee from the NFL or MLB, the price of their jerseys will go up. Rising prices may simply represent a desire to stay in business.
The National Library of Medicine reminds us of a time early in the COVID-19 pandemic when a 2-liter bottle of Purell sold for as much as $250. That is clearly price gouging.
Flexing your muscles as a consumer
Often, it’s everyday shoppers who must look out for the financial well-being of their neighbors.
If you’re unsure if you’ve witnessed price gouging, US-PIRG recommends erring on the side of caution and reporting the incident to your State Attorney General’s office. You can find the office address, phone number, website, and email address online.
Consumer contact is the only way state officials can know whether price gouging is taking place. Thirty-seven states, plus Guam, Puerto Rico, the U.S. Virgin Islands, and the District of Columbia, currently have statutes or regulations against price gouging, and most of these laws enforce civil penalties.
Gather the following information before contacting your State Attorney General’s office:
- Name and address of the store or vendor where you saw the item.
- Product details, like product type, brand, size, and asking price.
- Date, time, and location you saw the item.
- If possible, provide a picture of the item you saw.
There will always be those who are happy to empty a customer’s checking account to fill their own, but that doesn’t mean they have to get away with it. If enough consumers make a report when they notice suspected price-gouging, some of the worst offenders can be shut down.
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