Price Gouging.

• Author: Van Doren, Peter

Price Gouging * "Price Gouging in a Pandemic," by Christopher Buccafusco, Daniel Hemel, and Eric Talley. SSRN Working Paper no. 3758620, January 2021.

When negative supply shocks occur, debate immediately arises about the appropriate role of price changes as an acceptable allocation method. The conventional wisdom is that only economists favor large price changes to reduce demand and create incentives for increased supply to remedy the negative supply shock. Everyone else supposedly prefers quantity limits on consumption.

This conventional wisdom was first presented academically by Daniel Kahneman, Jack L. Knetsch, and Richard Thaler in their 1986 American Economic Review article "Fairness as a Constraint on Profit Seeking: Entitlements in the Market." They surveyed Canadians in Toronto and Vancouver about a scenario in which a hardware store raised the price of snow shovels from $15 to $20 after a large snowstorm. They reported that more than 82% of respondents characterized the price increase as unfair.

The COVID-19 pandemic has provided an opportunity to test whether this view is held by today's Americans. In this paper, Christopher Buccafusco (Cardozo School of Law), Daniel Hemel (University of Chicago Law School), and Eric Talley (Columbia University School of Law) surveyed 656 U.S. residents in May 2020 about a scenario in which a...