New Jersey Charges Seven Gas Stations and a Hotel With Gouging

Last week, New Jersey charged eight businesses with gouging customers with exorbitant prices after Hurricane Sandy — seven gas stations and a hotel. What struck me as curious was the relatively low increases that were the basis for the change, including an eleven percent increase.

There has always been some academic debate over the concept of gouging which rests uneasily with economic principles of scarcity of demand. Some businesses privately argue that they should be able to raise their prices to reflect scarcity of products, which should rise with demand. Under the scarcity principle, the price for a good rises until an equilibrium is reached between supply and demand.

Gouging laws, however, treat such increases as abusive treatment of desperate consumers. Thus, if you sell batteries and happen to have wisely stored an inventory of such items before a storm, you cannot reap the expected profits by increasing the price of the product.

In one of the cases, an owner of a Howard Johnson Express was charged with gouging for simply raising its prices from $90 to $119 — just shy of $30 dollars or 32 percent.
The prosecutors insisted that such small increases were still gouging absent a showing that the defendants faced added costs. What is interesting is one case involved just an 11 percent increase — or one percent above the permitted increase under state law.

The law does not keep most businesses from increasing their prices, just those businesses deemed essential for living. The law covers “goods or services which are consumed or used as a direct result of an emergency or which are consumed or used to preserve, protect, or sustain life, health, safety, or economic well‑being of persons or their property.” The freeze on pricing for these business extends for “45 days from the triggering event.” New Jersey uses a 10 percent benchmark for increases.

Thirty-four states and the District of Columbia have anti-price gouging laws

The defendants face fines of up to $10,000 for their first offenses and $10,000 for subsequent offenses.

I understand the purpose of these laws to protect consumers, but I wonder if the ten percent line is a bit low as a threshold. What do you think?

Here is the full law:

§ 75‑38. Prohibit excessive pricing during states of disaster, states of emergency, or abnormal market disruptions.
(a) Upon a triggering event, it is prohibited and shall be a violation of G.S. 75‑1.1 for any person to sell or rent or offer to sell or rent any goods or services which are consumed or used as a direct result of an emergency or which are consumed or used to preserve, protect, or sustain life, health, safety, or economic well‑being of persons or their property with the knowledge and intent to charge a price that is unreasonably excessive under the circumstances. This prohibition shall apply to all parties in the chain of distribution, including, but not limited to, a manufacturer, supplier, wholesaler, distributor, or retail seller of goods or services. This prohibition shall apply in the area where the state of disaster or emergency has been declared or the abnormal market disruption has been found.
In determining whether a price is unreasonably excessive, it shall be considered whether:
(1) The price charged by the seller is attributable to additional costs imposed by the seller’s supplier or other costs of providing the good or service during the triggering event.
(2) The price charged by the seller exceeds the seller’s average price in the preceding 60 days before the triggering event. If the seller did not sell or rent or offer to sell or rent the goods or service in question prior to the time of the triggering event, the price at which the goods or service was generally available in the trade area shall be used as a factor in determining if the seller is charging an unreasonably excessive price.
(3) The price charged by the seller is attributable to fluctuations in applicable commodity markets; fluctuations in applicable regional, national, or international market trends; or to reasonable expenses and charges for attendant business risk incurred in procuring or selling the goods or services.
(b) In the event the Attorney General investigates a complaint for a violation of this section and determines that the seller has not violated the provisions of this section and if the seller so requests, the Attorney General shall promptly issue a signed statement indicating that the Attorney General has not found a violation of this section.
(c) For the purposes of this section, the end of a triggering event is the earlier of 45 days after the triggering event occurs or the expiration or termination of the triggering event unless the prohibition is specifically extended by the Governor.
(d) A “triggering event” means the declaration of a state of emergency pursuant to G.S. 166A‑8 or Article 36A of Chapter 14 of the General Statutes, the proclamation of a state of disaster pursuant to G.S. 166A‑6, or a finding of abnormal market disruption pursuant to G.S. 75‑38(e).
(e) An “abnormal market disruption” means a significant disruption, whether actual or imminent, to the production, distribution, or sale of goods and services in North Carolina, which are consumed or used as a direct result of an emergency or used to preserve, protect, or sustain life, health, safety, or economic well‑being of a person or his or her property. A significant disruption may result from a natural disaster, weather, acts of nature, strike, power or energy failures or shortages, civil disorder, war, terrorist attack, national or local emergency, or other extraordinary adverse circumstances. A significant market disruption can be found only if a declaration of a state of emergency, state of disaster, or similar declaration is made by the President of the United States or an issuance of Code Red/Severe Risk of Attack in the Homeland Security Advisory System is made by the Department of Homeland Security, whether or not such declaration or issuance applies to North Carolina.
(f) The existence of an abnormal market disruption shall be found and declared by the Governor pursuant to the definition in subsection (e) of this section. The duration of an abnormal market disruption shall be 45 days from the triggering event, but may be renewed by the Governor if the Governor finds and declares the disruption continues to affect the economic well‑being of North Carolinians beyond the initial 45‑day period. (2003‑412, s. 1; 2006‑245, s. 1; 2006‑259, s. 41.)

Source: NBC

34 thoughts on “New Jersey Charges Seven Gas Stations and a Hotel With Gouging”

  1. OS, It’s Jersey..more likely to get beaten w/ a baseball bat by a guy in a workout suit.

  2. Bron,
    Put yourself in this hypothetical. You have a service station. There is a mandatory evacuation order due to some natural or man-made disaster. Most of your competitors have run out, but your supply truck just made a run and all your tanks are full. What do you do?

    I will say this. If you tried to gouge some folks who are trying to get their families out, you would be taking your life in your hands. Those fleeing a disaster probably are not able to access much money from an ATM, and communication systems may be so jammed that credit cards won’t work. I know a number of people who would not hesitate to shoot you on the spot.

  3. If govt price setting is not any better for us in good times then it probably is not any better in bad times. Why not set prices for gas a $1/gallon all the time – sure beats $4! Why is $4 right? Those that think you can wave a magic wand and set the right price for your product I would ask that you start a business and give it a try.

    Changing your price level – up and down – to judge the market is good. People would prepare better. Supply would come to the area. And local gas stations that know they have to compete would all be out there hand-pumping hoping to keep your business forever. And so entrepreneurial types so have 5 gallon red cans at the ready for the highest bidder. It can all coexist.

    Btw – there is a big difference between ASKING a lot for your goods and taking VIOLENT action to take other peoples property. Anyone saying violent action is right really needs to rethink that one.

  4. There is a difference between profiting and profiteering. Purposely taking advantage of citizen’s misfortunes during a declared state of emergency should be strictly controlled by a low threshold.

  5. Those who have the products are lucky they aren’t the ones on the receiving end of the disaster. Sharing their good fortune by charging the usual rate is only right. Overcharging is gloating about their good fortune.

    I like the story about the ice truck being taken over. A good lesson for the gougers. They could have done quite well for themselves if they hadn’t been so greedy. If only we could do the same to the banksters et. al.

  6. nick:

    If I had a gas station in a local community, i would do the same. A disaster doesnt last indefinitely and you have to have business when things are back to normal.

    I would ask how much people were willing to pay for gas so I could know how much I could buy it for and still be able to sell it at a profit. Although I keep a normal profit level of so much per gallon.

    Your scenario is different from giving people incentive to bring goods to an area hit by a storm.

    But the bottom line is people should be allowed to charge whatever price they want.

  7. I am a free marketer but this is wrong and a stupid place to take a free market stand. And, it’s myopic. I saw a piece on the national news about a good man who owned a Sunoco station in NJ. He was pumping out gas by hand w/ no electricity and charging a fair price. He knew his customers, they knew him, and they all spoke glowingly. I’ll bet there are many more ethical businessmen in this situation. On a related subject, NJ is[or was the last time I was there in 2010] the only state that doesn’t allow people to pump their own gas. My friends in NJ call it the “Flunky Employment Law”. Have they waived that?

  8. OS:

    there is that to consider. I guess I have a limit, I would not charge $100 for a bag of ice. But $6 to $8 does not seem unreasonable. And if I could get ice for a buck a bag I might charge 3-4 dollars.

    You have to be able to sell the stuff you bring. If you buy 1000 bags of ice at 2.50/bag you want to be able to get rid of them and make a profit. I would probably want to break even at 500 bags so I would need to charge about $5/bag. That would give me a pretty good profit and probably ensure that I sell all of the bags.

  9. Gouging is not a right. The law is pretty specific. If you exceed the percentage, you are subject to the law. It is designed to protect us all in the case of an emergency and it should be enforced. It is sick to think someone would want to make a killing during a disaster.

  10. Bron,
    There is another market factor the price gougers should keep in mind. Other than the law of supply and demand. Gouge desperate people enough, and the law of the 2nd Amendment will come into play. Imagine a man or woman with a sick child and they cannot afford to pay an exorbitant price for a gallon of milk or some other essential. Not all people will do it, but look for at least one person in the crowd who will take matters into their own hands. It happened during Katrina when price gougers showed up with ice and wanted something like a hundred dollars a bag. Armed citizens in the crowd took over the truck and started tossing the bags out to the others, for free. The price gougers were lucky to get out alive.

  11. Price controls result in product shortages, which result in long lines and long waits to obtain said product. Is $8.00 too much for a bag of ice? Normally yes, and I wouldn’t pay it. After a natural disaster, maybe not, and I might buy it if I needed ice. That’s how the market works. Increased demand for a product results in increased prices for that product. Decreased supply of a product also results in increased prices for that product. Politicians throw a monkey wrench into this economic reality with price controls in order to appear charitable and compassionate to the masses. They really just make things worse.

  12. Bron,

    I knew you were charitable in your heart…..I think the reaction to the so called gouging is exactly that….. But hey…. If you can afford it….. Then by all means pay it…

  13. AY:

    do you think someone is going to pay those prices? The rich could of course. If someone wants to pay those prices why shouldnt they be able to?

    So you just hope the government will get it done? I am guessing if gas cost $15/gallon, the rationing would be over and there would be a large amount of gas available for $4/gallon.

    If I could double my money for, say, a generator, I would buy 10 of them and bring them up to New York and New Jersey. If I can only charge 10% more that would not cover my time or my gas to get up there. Send $100 bucks to the Salvation Army and let them worry with it.

    Rational self interest can get things done.

    Is it better to not have a generator when needed or to pay $1200 for one? If someone is willing to pay then that is a transaction between 2 consenting adults and the state has no business dictating price.

    Why would you want to deny people goods and services? Only the well off can afford it so it isnt fair to the less fortunate? By letting prices rise, the rich are paying to direct goods and services to where they are needed the most. I am guessing the less fortunate are helped quicker.

  14. Bron…. I was waiting for you…. And your response….. Do you think 8 dollars is too much for a bag of ice….. Or 250 for a sheet of ply board….. How about motel 6 at 400 dollars a night…. These are reasonable prices in your mind based upon demand…. Right?

  15. this is an interesting subject on how to direct goods and services to an area most in need.

    In my opinion you could do far more good by allowing unlimited price increases in all goods and services.

    Take gasoline for an example, if the price were raised to $10/gallon a good many individuals on the east coast would be bringing gas to New York and New Jersey and companies like Sheetz and Loves would be redirecting gasoline to where they could make a good profit. The commodity would be diverted to the highest price.

    There are a couple of benefits to this, first you have natural rationing and second you increase supply. In my opinion had the government let gas prices rise, the rationing would be over and the price of gas would be on its way down due to an increase in supply.

    “What are prices for? What role do they play in the economy?

    Prices are not just arbitrary numbers plucked out of the air. Nor are the price levels that you happen to be used to any more special or “fair” than other prices that are higher or lower.

    What do prices do? They not only allow sellers to recover their costs, they force buyers to restrict how much they demand. More generally, prices cause goods and the resources that produce goods to flow in one direction through the economy rather than in a different direction.”

  16. I think this is a good thing for the government t be involved in…. Now there are some that might disagree….

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