Buccafusco, Hemel and Talley, ‘Price Gouging in a Pandemic’

The ongoing COVID-19 pandemic has led to acute supply shortages across the country as well as concerns over price increases amid surging demand. In the process, it has reawakened a debate about whether and how to regulate ‘price gouging’. Animating this controversy is a longstanding conflict between laissez-faire economics (which champions price fluctuations as a means to allocate scarce goods) and perceived norms of consumer fairness (which are thought to cut strongly against sharp price hikes amid shortages). This article provides a new, empirically grounded perspective on the price gouging debate that challenges several aspects of conventional wisdom. We report results from a survey experiment administered to a large, nationally representative sample during the height of the pandemic’s initial wave. We presented participants with a variety of vignettes involving price increases, eliciting their reactions along two dimensions: the degree of unfairness they perceived, and the legal response they favored. Overall, we find that participants are more tolerant of price increases than either the existing behavioral economics literature predicts or most state price gouging statutes countenance. But we also find that price fairness perceptions can be highly sensitive to context. For example, participants are much more tolerant of moderate price increases if they previously are asked to contemplate large price increases. Moreover, participants are substantially more willing to accept a price increase when it is accompanied by an apology and/or a public-minded rationale (such as supporting furloughed employees). We explore the implications of our findings for behavioral economics, pricing practices, and legal reform.

Buccafusco, Christopher J and Hemel, Daniel J and Talley, Eric L, Price Gouging in a Pandemic (January 1, 2021).

Leave a Reply