What is Price Gouging?

Mary McMahon

The term “price gouging” is used in two different ways. In casual usage, it refers to raising the prices on goods or services to a level which is perceived as unfair. It is also a legal term in some regions of the world, where there are laws against taking advantage of consumers when a period of emergency has been declared. This type of price gouging could occur during a hurricane for example, when a shop-owner might raise the price of emergency supplies to profit from increased demand.

If two companies happen to sell competing products at the same price, it is only considered price fixing if collusion can be proved.
If two companies happen to sell competing products at the same price, it is only considered price fixing if collusion can be proved.

When people use the term in a casual sense, they usually mean it to suggest that the prices at a store or company are unfair, and that they represent unreasonable profits. In a free-market system, of course, no profits are “unreasonable,” and supporters of free-market capitalism point out that raising prices on goods in high demand is simply a savvy business move. Consumers typically feel differently because they are the ones who must bear the brunt of the high prices.

Price gouging can mean gas prices dramatically rise with no clear explanation.
Price gouging can mean gas prices dramatically rise with no clear explanation.

People may recognize that high prices are actually reasonable, if they consider the cost of production and overhead for the business selling the product, but they may grumble anyway. This is especially common in periods of economic inflation, when prices often seem to spiral out of control, and it may feel like companies are price gouging. In fact, many companies suffer greatly during periods of inflation as they struggle to keep prices low enough to retain customers while still turning a profit on goods that have suddenly become much more expensive to obtain or produce.

Customers may be offended by their final bill when price gouging occurs.
Customers may be offended by their final bill when price gouging occurs.

In the legal sense, price gouging can be a serious issue. In nations with laws about pricing, the law typically states that when an emergency is declared, unusually high prices may be viewed as illegal. If a price gouging charge can be proved, the violator is typically fined. Goods like gas, food, ice, and other emergency supplies are especially vulnerable to this practice, since almost everyone needs these supplies, and people will pay any cost to get them.

In countries with price gouging protections, a means to report the problem is usually readily available through a government agency. Forms can be filled out in person or on the Internet, and some agencies also have hotlines that people can call to report potentially illegal activity. Consumers may want to be aware that most companies can justify a small price inflation with the argument that they need to provide hazard pay for employees who work during an emergency, and that goods may become more expensive when they are delivered or manufactured in a crisis. Therefore, price gouging is generally only taken seriously when the prices are significantly elevated and clearly designed to take advantage of consumers.

Price gouging is unfair to consumers.
Price gouging is unfair to consumers.

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Discussion Comments

anon75672

would this be good for a presentation that i am doing for school?

anon31651

What is 'price over quality' and vice versa?

thanks, prince anthony

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