A Guide to Price-Gouging Laws During COVID-19 and Beyond

Emergencies such as the COVID-19 pandemic throw markets into chaos. Depending on your industry, you may have seen demand go through the roof or drop through the floor. Many businesses continue to struggle with availability and prices of supplies.

At what point do price increases become illegal price gouging? Find out what price gouging is, how to know if you're charging or paying too much for an essential resource, and how to minimize your risk of price-gouging claims.

Overview: What is price gouging?

Price gouging occurs when sellers overcharge customers for essential goods and services during a crisis. Unfortunately, examples of price gouging are common right now, such as the Manhattan hardware store that raised prices for hand sanitizer to $79 per bottle in March 2020.

Many states have long-standing laws against price gouging, and others have enacted laws in response to the coronavirus pandemic.

While there isn't a federal price-gouging law, the Defense Production Act of 1950 (DPA) allows the U.S. president to protect certain supplies from hoarding in times of crisis. President Trump issued an executive order in March prohibiting hoarding and price gouging for resources needed to combat COVID-19.

In the wake of the COVID-19 outbreak, numerous bills have been introduced to prohibit price gouging at the federal level. It's very likely we'll see a federal law enacted during the next year or two.

While state price-gouging laws vary, they generally:

• Are triggered when a state of emergency is declared
• Protect specific types of goods or services
• Set a benchmark price at some point before the crisis
• Set a percentage increase above that price as the price-gouging threshold
• Make allowances for increases in incurred costs

Profiteering is similar to price gouging. It involves hoarding goods during an emergency to resell them at exorbitant prices.

An example is the New York sporting goods retailer who bought more than 5.6 tons of masks, surgical gowns, hand sanitizer, gloves, and other critical supplies in March and April to sell in a dedicated section of his store. He became the first person prosecuted under the DPA and faces up to one year in prison if convicted.

Potential penalties for price gouging are severe, including fines, license revocation, and jail time. With a sound pricing strategy, you can avoid claims of predatory pricing.

Price-gouging laws by state

More than 30 states have made price gouging illegal. In states without a prices law, consumer protection laws may be used to pursue claims of unfair pricing.

Here are some highlights of what the laws cover.

Best practices to avoid price-gouging claims

When prices fluctuate in emergencies, you may need to raise your prices in turn. As long as your price changes are driven by rising input costs, and your profit margins are within the usual range, you should be able to defend your prices. These best practices will help:

• Closely track and document changes in supplies and other input costs
• If supply costs increase, shop around for better deals and document your findings
• Report excessive prices you encounter to your state attorney general's office
• Document pricing before the emergency began to defend your baseline pricing
• Maintain your normal profit margins throughout a crisis

A robust point-of-sale system can capture and track many of these data points for you.

Profits at a price

Hard times, even more than good times, are opportunities. Businesses that see them as merely an opportunity for boosting profits lose in the long run, whether through citations or ill will or just bad karma.

On the other hand, those that try to help their customers weather the storms build assets money can't buy in the form of good will, loyalty, and a reputation for fair dealing.