Hurricane Charley has reportedly brought out the worst in some merchants, as the Florida attorney general's office has been inundated with complaints about price gouging. Among the travesties cited are a $10 bag of ice in Orlando, $3 gallons of gas, and $2,000 power generators. At what point does a little legal—albeit morally suspect—profiteering turn into illegal price gouging?
In Florida, as in at least 20 other states with similar laws on the books, pricing curbs kick in during declared emergencies—say, when thousands of residents have been walloped by a natural disaster. The standards vary from state to state, but the rule of thumb is that gouging occurs when a good or service—especially those deemed essential, such as fuel or food—costs at least 10 percent to 25 percent more than the norm prior to the emergency.
Not every state's price-gouging law details how much of an increase will make a markup illegal. The Florida law, which was passed in 1992 in response to massive gouging in the wake of Hurricane Andrew, forbids vendors from charging an "unconscionable price" for their wares during an emergency. The attorney general is responsible for deciding what constitutes an unconscionable price, using prices over 30 days prior to the crisis as a barometer of what's fair market value.
Other states give their attorneys general less discretion. In Arkansas, for example, the law caps price increases during an emergency at 10 percent of the pre-emergency price. The cap remains in place for 30 days after the disaster hits and can be extended by another 30 days if local officials see fit. But if a merchant can prove that the emergency caused their costs to rise so much as to make a 10 percent increase a money-losing proposition, they can instead charge 10 percent above the wholesale cost plus whatever the pre-emergency markup was.
In some states, a governor can also institute temporary price-gouging controls with an executive order, even if a state hasn't been directly hit with a calamity. The day after the terrorist attacks of 2001, for example, South Carolina Gov. Jim Hodges signed a 15-day executive order to prevent price gouging on gas, despite the fact that his state was hundreds of miles from the violence. (Hodges was concerned that oil companies would raise their prices in the wake of the attacks, and that gas-station owners would in turn use that as an excuse to gouge customers.)
Not every price-gouging law requires an emergency to take effect. In New York, when it comes to milk, supermarkets are forbidden from charging any more than 200 percent above what the farmer sold it for originally. Last month, New York Attorney General Eliot Spitzer announced that an investigation had revealed that 30 percent of stores were gouging consumers on milk.
Explainer thanks Justin Marks of the National Conference of State Legislatures.