A commentary in the Washington Times argues that outlawing price gouging would have a similar impact to price controls.Ã‚Â By arbitrarily setting prices below market value the government would stimulate demand while dampening supply, leading to shortages.Ã‚Â Fortunately, the Federal Trade Commission, whom Congress has proposed giving the authority to define price gouging, wants no part of this.
Yet the FTC is not exactly a firm believer in the cause. The agency recently released a report in which it exonerated the oil industry of price gouging in the weeks after Katrina and Rita.
The report goes on to say that it would be difficult for the agency to define price gouging and thus difficult to provide direction to companies on how to comply with the law.
It concludes that a price-gouging law that doesn’t account for market forces would be counterproductive. “Holding prices too low for too long in the face of temporary supply problems risks distorting the price signal that ultimately will ameliorate the problem.” In other words, price-gouging restrictions could act as de facto price controls and cause the same kinds of problems.
It’s somewhat unusual for a government agency not to favor a vast expansion of its authority. That’s what makes the FTC’s reluctance to become the price-gouging police is particularly noteworthy. Congress should heed the agency’s advice before proceeding on price-gouging legislation.