Price Gouging Tests the Limits of Free Competition

Last month, a pair of brothers in Tennessee made headlines for stockpiling hoards of hand sanitizer and bacterial wipes purchased from retailers during a “1,300-mile road trip across Tennessee and into Kentucky”.  The entrepreneurs then listed the items on Amazon, often for many times the original purchase price.  Throughout March, similar stories abounded – while physical store shelves emptied, online listings for basic sanitation products multiplied, and at enormous mark ups.   The problem became so severe that the state of New York got into the hand sanitizer business.  

Widespread outcry from consumer groups and government officials has focused attention on “price gouging,” a practice as odious as it is hard to define.  About 40 states have laws against price gouging, often triggered by a governor’s declaration of a state of emergency.  Some of those laws define price gouging as a price increase above a certain amount, while others ban price increases that are not deemed “reasonable.”  But there is no federal laws or guidelines on price gouging.  On March 23, President Trump issued an executive order instructing the Department of Justice to prioritize “the detection, investigation, and prosecution of fraudulent activity and price gouging related to medical resources needed to respond to the coronavirus.”  But it was not until last week that federal officials brought the first-ever price gouging case under the Defense Production Act of 1950, against a New York retailer.  

But varying definitions and a rapidly shifting marketplace can make identification of actual price gouging difficult.  A former DoJ attorney noted that price gouging rules “are different from the traditional goals of antitrust laws, [because] [t]hey aren't promoting competition and free-market principles. They are putting caps on prices, which is not typical. But that's the world we're in now.”

Now, the Tennessee brothers have been compelled to donate their hoarded goods, in connection with a settlement of state charges.  And even civil litigants are attempting to address the issue: last week, 3M won a restraining order against distributor Performance Supply LLC for selling 3M products at exorbitant prices: “The lawsuits don’t claim the defendants are selling fake masks, but rather that they are using the 3M trademark and other misleading tactics to dupe buyers into thinking their sky-high prices are somehow authorized by 3M.”  Meanwhile, a California class action accuses Amazon of price gouging on entire categories of “essential goods”.

With this new found attention, Proposal for new federal laws are now making their way through Congress.  It remains to be seen whether Congress’ attention span extends longer than the current crisis.