Those of us living outside the Texas and Louisiana Gulf Coast region have looked on in disbelief and sadness as unrelenting rain has inundated those areas. The tragedy, though, has also reminded us of the better parts of our nature as we have seen countless examples of stranger helping stranger. However, from time to time Texas law enforcement officials have also reminded us of the worst parts of our nature as they have warned businesses against price gouging and the severe penalties associated with such activity.
Which led us to wonder, what is price gouging in the state of Texas? How is it different from the general rules of supply and demand? Doesn’t everything always cost more around the holidays? Has socialism infiltrated Texas? So we decided to take a look.
It is perhaps not surprising that the Texas law is quite narrow in scope. First, the governor has to have made a disaster declaration; second, the product or service has to be a “necessity”; and third, the price has to be “excessive” or “exorbitant.” Further, the Texas Attorney General has made clear that gouging does not include charging more for gas because refineries have gone offline, resulting in diminished supply. So then what is gouging? Presumably, given the gasoline example it’s not so much whether the price is too high but rather whether the profit is excessive, at least when it comes to necessities and natural disasters.
And, in one of the few areas where the two states perhaps agree, New York also has a price gouging law, which was invoked during Hurricane Sandy. Not surprisingly, though, the New York law is slightly broader as it encompasses any “abnormal disruption of the market,” which is in turn defined to include things such as “weather events, power failures, strikes, civil disorder, war, military action and national and local emergencies.” New York makes it clearer, however, that what is primarily at issue is whether profits are unconscionable, noting that the statute prohibits business from “taking unfair advantage of consumers by charging unconscionably excessive prices, and increasing its profits, under severe circumstances that call for shared sacrifices.”
So let’s hope that the circumstances that have led to warnings about price gouging dissipate quickly, but in the meantime it seems that any concerns about the demise of ordinary rules of supply and demand have been greatly exaggerated.