What is price gouging and how is it different from typical inflation, dynamic pricing, or the economics of supply and demand?
In: Economics
Price gouging is a very specific opinion of behavior considered bad enough to be illegal. Usually it’s a state or local law, so it can be different everywhere you live.
In my state, I believe there has to be a declared emergency by local or state officials for price gouging to even be possible, and the thing being sold has to be considered some form of “vital” supply. So if a gas station near my house just decides to try $10/gallon gas when nothing’s going on, that’s considered fine. But if there’s a tornado that affects the local area and it leads to a shortage of gas, and the mayor declares a state of emergency, then the gas station is now legally very limited in how they can set their prices. Setting it to $10/gallon will most definitely end with a lawsuit and fines.
But people today use words like “censorship” and “price gouging” liberally, so you’ll hear accusations for just about any scenario. For example, they consider “surge pricing” in Uber/Lyft to be gouging. Normally, it’s not. But when they were new, and they tried it after a serious ice storm in my area, they got strong reprimands from the state and since then when there’s a disaster like that they announce that they will NOT be using surge pricing for a few weeks.
So the increased price *is* natural supply and demand. But the economists who came up with capitalism also agreed there can be “market imbalances” and if the government doesn’t step in to regulate those it can be very bad for the whole economy. So it’s justifiable that the government can choose to step in and regulate prices in emergencies.
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