Scalping and Price Gouging

Scalping, or price gouging, is the practice of hoarding many of one item that is in scarce supply and selling it above market rate prices. Both terms refer to the same practice, but “price gouging” typically refers to necessities like food, water, or cleaning supplies, whereas “scalping” can refer to those items, but also consumer goods like cars, fuel, or computers. 

Many states have laws outlawing “unconscionable price increases” on certain necessary goods during states of emergency. The definition of “unconscionable” depends on the state; in states like Indiana, Florida, and Tennessee, there is no specific definition of the term; in Hawaii, any price increases during states of emergency are outlawed; in other states like Arkansas, California, or Delaware, the definition is 10%. Ten states have no laws against price gouging, even in states of emergency.

Price gouging and its prevention raises some uncomfortable questions. Who has a greater claim to a scarce resource: the person who is willing to pay most for it, or the person who needs it most? The law is a bad student; when asked questions, its answers aren’t considered nor clear, but rather the sum of abstract and bizzare political negotiations. But the answer it gives to this question seems to depend on the good. For “necessary” goods (hand sanitizer, food), the person who needs it most. For everything else, the person who is willing to pay most. In practice, the measure of how much someone “needs” something is how long they’re willing to stand in line for it. Obviously imperfect, but better still than the highest bidder, at least according to forty state governments.

Enforcement of price gouging laws tends to be nontraditional. In Tennessee during February 2020, two brothers travelled across the state buying as many sanitizing products as stores would let them. The next month, they began selling these items on Amazon and eBay at markups ranging between $8-$70. Amazon and eBay banned their accounts, and after a New York Times article shined light on their stockpile, the state of Tennessee gave them an ultimatum: donate their goods or face fines and get their goods donated for them. In this example, they took the offer and donated their stockpile, and of course stopped for a news lap showcasing their generosity. 

At time of writing, slightly over half of states, including Indiana, are in the same state of emergency declared federally on March 13, 2020. It’s unclear when these states of emergency will end. In the same moment, organic economic forces are driving market rate prices of even essential items up; at what point does a merchant go from keeping their margins competitive by raising prices to playing dress-up market maker and illicitly price gouging? Ten percent is a simple solution some states have opted for, but prices for some non-essential goods have already increased over 10% since March 13 of last year. Cars, for example, are about 30% more expensive, as of late 2021. 

General supply-side issues make scalping both inevitable and common, and with any luck it will stay to only consumer goods as it is now. Price gouging is a problem with no easy answers, and is caused by situations that are already difficult.