Where is the line between basic laws of supply and demand and predatory price hikes that hurt poor shoppers the most?
Remember March? That was when the coronavirus pandemic forced offices across the country to close and companies told their employees to work from home—if they didn’t fire or furlough them instead. Facing a public health crisis with an unknown trajectory, people prepared for the worst, stripping grocery stores of hand sanitizer and disinfectant, but also of products like flour and yeast and, yes, toilet paper.
The dueling headlines back then were either about empty shelves, or predatory price gouging. A New York Times article about a Tennessee man who purchased 17,700 bottles of hand sanitizer intending to sell them at a markup online inspired thousands of angry comments on social media, and Matt Colvin became a target for hate mail and death threats.
Earlier in the pandemic, hoarders were blamed for wiping out toilet paper in stores as well, but the reality is a little more complicated. Think of those hundreds of thousands of office workers now toiling away from their beds, or couches, or kitchen tables—they used to go to the bathroom at work between the hours nine to five, approximately; now they go at home ‘round the clock. And most people at home buy the fancy quilted stuff, not the single-ply rolls you find in places like airports and fast food restaurants. Those two supply chains are separate and distinct—and after the pandemic hit, totally clogged up. (Similar dynamics have played out with milk, flour, and other supermarket staples.)
So prices went up, and up.
This is not the first lawsuit over price gouging filed since the coronavirus pandemic began, or even the first time Albertsons has been named in such a case.
Last week a Safeway customer filed a class action lawsuit against the parent grocery chain Albertsons for selling essential items at inflated prices in violation of a California law that prevents price increases greater than 10 percent during a state of emergency.
Eleisha Redmond says she paid $19 for a package of Angel Soft toilet paper that would normally be less than $11 at the same location in San Francisco after California declared a state of emergency on March 4.
You don’t have to look far to find other discontented shoppers.
One complained on Twitter that she paid $37.98 for two bottles of hand sanitizer (that’s $18.99 a pop); another said two rolls of paper towels were selling for $12.99; another paid $8.99 for a bottle of disinfectant.
This is not the first lawsuit over price gouging filed since the coronavirus pandemic began, or even the first time Albertsons has been named in such a case. In late April, a group of consumers filed a lawsuit against a slew of stores including Whole Foods, Walmart, Trader Joe’s, Costco, Amazon, Albertsons, and Kroger Co. for tripling the price of eggs after a state of emergency was declared.
National chains like Albertsons and Walmart can simply shift products from unaffected regions to the area with greater demand without needing to increase prices too much.
Steven Horwitz, an economist from Ball State University, says the cases in California are unusual in that they target large chains, when it is more common to see cases against smaller brick-and-mortar stores. This is in part because smaller stores have fewer resources and are more likely to settle than to fight a lawsuit. But it is also because most crises that result in food or supply shortages are regional; a hurricane that hits the East coast, for example, has a negligible effect on the rest of the country. National chains like Albertsons and Walmart can simply shift products from unaffected regions to the area with greater demand without needing to increase prices too much.
The coronavirus pandemic isn’t like that. While it has hit some states, some regions, and some cities harder than others, it has impacted the entire country, so the entire country needs a few in-demand products.
While there is no federal law against price gouging, Michael C. Munger, an economist at Duke University, says 34 states have some kind of anti-price gouging law, and governors will sometimes use an executive order during an emergency to prohibit price gouging, too. The laws vary from state to state, but usually only apply during a state of emergency and to essential items, which can include food, water, gas, shelter and, apparently, toilet paper. Governments may limit the percentage that stores can increase prices—under 20 percent is reasonable, but over 20 percent is excessive—or set a price ceiling for certain items. Some restrictions are vague and up for interpretation. Munger points out that the law in North Carolina bans price increases that are “unreasonably excessive under the circumstances.”
Price gouging laws are meant to protect consumers from being taken advantage of during crises.
“If I’m a store owner, how do I know if I’m violating the law in North Carolina?” Munger says. “In practice, what this means is, ‘If someone complains….’ That’s not a very good law. If I can’t tell what the law means, it’s too vague.”
Price gouging laws are meant to protect consumers from being taken advantage of during crises. They are founded on the popular idea that companies and individuals should not profit from others’ misfortunes.
This is in spite of the fact that many economists, including Munger and Horwitz, would rather let market forces dictate prices, even if that means steep short-term inflation.
“I don’t think the companies did anything wrong,” says Horwitz, referring to those named in the California cases. “It’s a bad law.”
Munger explains that increasing prices on in-demand products serves several functions: it discourages people from buying more than they need; it tells producers to make more of this newly valuable product; and it nudges people into looking for alternatives. (Think: People investing in bidets because toilet paper is so expensive, or the sourdough bread boom that happened to coincide with a yeast shortage).
Munger acknowledges that the poorest customers are the ones hurt the most, whether prices are artificially capped and the stores sell out, or if stores let the market dictate price and the wealthiest buy up the supply.
Still, Munger acknowledges that price gouging evinces an emotional response in people—just look at the vitriolic response to the hand sanitizer hoarder in Tennessee—and that anti-price gouging laws are very popular.
Unfortunately, higher prices are no solution to what Munger calls the Bill Gates problem, in which wealthy customers pay more for items “just in case,” simply because they can, clearing out store shelves before others have a chance to shop.
In either system, Munger acknowledges that the poorest customers are the ones hurt the most, whether prices are artificially capped and the stores sell out, or if stores let the market dictate price and the wealthiest buy up the supply.
“There’s no difference for poor people,” Munger says. “In both systems, the shelves are empty. The only way to get the shelves refilled for poor people is high prices.” Temporarily, at least.