Price gouging, price fixing and price controls

Something a little different tonight: talking about pricing.

I’m not talking about pricing models created to figure out what to charge for a service or product. That topic is a typical FP&A topic.

Not tonight though. It’s economic.

It’s terminology which I have never really thought about before: price controls versus price fixing versus price gouging.

I was watching a video where the news hosts (A) were talking about how other news hosts (B) were confusing price controls when talking about Kamala Harris’ suggested policies on price gouging. News hosts A were saying that Kamala Harris was NOT talking about price controls which was the term used in news hosts B editorials.

Price controls, at least from what I have read years ago, have been regarded as bad because… I don’t remember. I had to do some research and some of the reasons price controls have been regarded as bad are 1) they can lead to shortages, 2) lead to bad quality, and 3) create black markets for goods.

Price controls is something where the government gets involved and sets price ceiling (or floors) in order to make something affordable.

Kamala Harris was talking about going after the price gouging, which is subtly different. Pricing gouging is where sellers sell a product, that is a necessary good (like food, water, etc.) and have no substitutes, at a steep price just because they can. During the pandemic, Trump’s government went after those who chose to resell masks (I think it was masks) at a steeply higher price because masks became a necessary good in a life and death situation.

I believe Kamala was talking about those grocery chains using the cover of inflation to sell goods at a steeply higher price and thus grew their gross margins. The inflationary prices were not due to supply chain issues (which have long receded) but simply to greed – at least that is the current news story surrounding inflation.

She wasn’t really talking about price controls but going after those who price gouge, just like the Trump administration did during COVID.

Then there is price fixing where companies get together and agree on a price for selected goods and services. They are fixing the prices so that there is no competition and thus no place for consumers to buy cheaper goods. It is kind of like an oligopoly – kind of.

I do wonder how one goes about charging for price gouging. On one hand, there is the capitalist method of charging what the market will bear (free market), on the other hand, there is the going beyond what consumers can really bear but they buy anyway because it is a necessary good. When does free market price setting turn into price gouging?

I asked CoPilot what it knows about price gouging, especially in a legal context. Here is what it gave me:

Price gouging occurs when sellers increase the prices of goods, services, or commodities to an unreasonable or unfair level, especially during emergencies or crises. This practice is often illegal and is regulated by state laws in the U.S. Here are some key points to understand:

1. Emergency or Crisis Situation: Price gouging laws typically apply during declared emergencies, such as natural disasters or pandemics¹.
2. Essential Items or Services: These laws usually cover essential goods and services like food, water, gasoline, and medical supplies¹.
3. Unreasonable Price Increases: Many states define price gouging as price increases that exceed a certain percentage (often 10-15%) above the average price before the emergency². Some laws use terms like “gross disparity” to describe excessive price hikes².

For example, if a hurricane hits and a store raises the price of bottled water from $1 to $10, this could be considered price gouging¹.

I think she could have difficulty pursuing price gouging unless there are copious instances of CEO statement of using inflation as cover to guide their pricing of food.

That is going to be interesting to see if she gets elected.

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Addendum

I forgot to mention a couple of things that have crossed my newsfeed.

One is that housing in Texas has become unaffordable. My first thought was the expensive housing was due to the large number of people moving to Texas from more expensive places, driving up the prices of houses and possibly rent. But, the news article I came across suggested another source and it does tie back to some earlier reports I had been reading but not related specifically to Texas. The other reason for unaffordable housing was that private equity firms have been buying up houses in Texas, thus making it difficult for first time buyers to get their foot in the door. Yeah, I had read earlier after the Great Recession that private equity firms were buying up housing.

The other news was that Justice Department had filed an antitrust suit against a real estate software company RealPage for “enabling collusion on rents”. This is an interesting concept and I’m not sure how the Justice Department will pursue this legally. It’s hard to come up with a legal framework for this suit.

Collusion, or price fixing, is people getting together, whether by phone, video or in person, to agree on setting some kind of price. At least, that is how I understand the term.

But collusion via software is a little harder to understand.

This is an area to keep an eye on. By the way, RealPage, according to New York Times, is owned by a…wait for it…a private equity firm. Boy, those private equity firms have their tentacles everywhere, sucking the life out of everything.

If you have access to the New York Times, here’s the link to it.