Has Anyone Been Successful Yet at Illegal Price Gouging?

When is price gouging a thing?  Most people would say it's like art - they know it when they see it. Some claim they see price gouging, even when it’s not a technically accurate term. And, some might say we are subjected to price gouging every day.  When is price gouging different than traditional supply and demand economics? For example, is Uber price gouging when surge pricing is in effect?  What about hotel rooms at the seashore during a holiday weekend?   And that last-minute ticket for a plane ride?

First, let’s get this out of the way – don’t price gouge. It's a bad idea.

That said, the reality is that in the United States, price gouging is more of a public image and a public relations issue than a legal one.  Most of the time people will complain about price gouging but rarely is it illegal.  I'm no lawyer but common sense says a successful prosecution would seem to be even less likely. But that still doesn't mean you should do it.

There is no US law against price gouging.  Sixteen states in the US don’t even have price gouging laws. 

First, let's talk about the law. There is no US law against price gouging.  Sixteen states in the US don’t even have price gouging laws.  As you can thus imagine, we have a lot of discrepancies on when and where price gouging can occur.  There is also variance on penalty and enforcement. 

Let’s look at a couple of states in detail.  

• West Virginia. Price gouging only goes into effect when a state of emergency is declared.  Prices for “vital and necessary goods and services” cannot be increased more than 10 percent above the prices before the state of emergency.  There is a caveat where pricing can exceed this if certain conditions are met (such as cost increases of raw materials and labor).  If convicted, it’s a misdemeanor and up to $1000 in fines.  WV's law is similar to the majority of others when it comes to price gouging.  It requires 1) an event - usually a state of emergency to be declared,  2) a description -- often a complicated one -- attempting to describe the illegal activity, and 3) a punishment – usually a fine or misdemeanor.  I’m also thinking a lawyer can drive a truck through some of those holes above – specifically the definition of "vital" and the supply chain cost issue.  And of course, this assumes the entire judicial system from the police to the judge is doing all this investigative work during a state emergency for a simple misdemeanor.   For context, getting caught with a small bag of marijuana has the same fine as being found guilty of price gouging.
• Michigan.  "Charging the consumer a price that is grossly in excess of the price at which similar property or services are sold" -- regardless of whether there is a declared emergency." A lawyer would likely have fun with the words "grossly" and "similar." Also, no state of emergency is required, so this activity can happen at any time - kind of scary for a business owner if it were enforced. Many states are like this -- very specific or very narrow, and vague.

Here’s another interesting twist.  As I write this during the covid19 pandemic, New York State is paying $7.50 per N95 mask (about 15x their normal price).  NY has some of the largest fines for price gouging (up to $25,000) and they even have a snazzy website to report violations (a rarity). But their own state laws against price gouging don’t apply to their own purchases.  This is partly because they are in a bidding situation. But, even if this wasn't, the law only applies to products used for personal, family or household purposes. Businesses and governments -- you are on your own! Ever hear the idiom about the fox guarding the henhouse? In this situation, there is a henhouse but nobody thought to guard it with anything! (NY Law)

I think that the most likely way for someone to get in trouble price gouging is probably via their supply chain. Neither the company's suppliers nor partners would be happy.  Let’s say a company buys N95 masks from 3M and sells them on Amazon. As they have recently posted on their website, Amazon is monitoring third-party sellers who set their own prices to protect against "bad actors."  They can do the most powerful thing to a business – which is to kick them off the system and close their account for violations.  This is far harsher than a misdemeanor sentence.  This is a business killer.  And I get why Amazon does it – after all, most people think they bought from Amazon even when a 3rd party is involved.  

But this starts to get to my point. Price gouging is not something a business wants to be associated with in any shape or form.  Not because of legal reasons but rather business reasons.  Customers don't want to be taken advantage of. Clearly, price gouging is taking advantage of your customers. It’s the opposite of providing value TO them – it’s taking value FROM them.  And to take short-term profits at the expense of your customers later will never be a good tradeoff.  Right now, business owners need their customers more than ever.  So, don’t fear the state government on the topic of price gouging.  Fear your customers!   

It’s right to make a fair profit.  You deserve it. Your customers want you to --- they want you around to keep taking their orders.  But you should be evaluating your profits via the value you provide every day, not just when there’s a pandemic.  Were you making a good profit before this, or were you struggling to survive to begin with, and a pandemic has pushed you to the wall?   And is it your profit that’s the problem, or is it the value you provide?  If the latter, fix the problem at its source.

This is another in a series of Linkedin articles that delves into the mystical and magical world of product and pricing and their impact on profits. I welcome your comments and feedback. Let's get a dialog going -- do you have a good story to share? Please do so!

I work as a consultant helping companies maximize profits through better marketing, selling and pricing. If your sales and profits are out of whack – or you don’t know where to begin - we should talk! I've worked with some of the biggest corporations and smallest individual businesses out there. I’m also a small business owner myself. Contact me.  You can read more about my work at my LinkedIn profile or my website: https://www.dukeofprofit.com