Approved By: Faculty of Arts and Sciences

Lindsay Guion,

Harvard University

Approved by: Faculty of Arts and Sciences

Date: October 25, 2005

HARVARD UNIVERSITY

Lindsay Guion, et al.

Michael J. Sandel, Ph D,

Professor of Government
Question: Is it wrong for sellers to boost prices of basic
goods such as water, fuel, lodging, and construction
Materials to take advantage of heightened demand in the
aftermath of a hurricane or other disaster?

There are no federal laws that specifically address
price gouging. Price gouging laws exist at the
State level and are generally applicable in
situations arising from a declared emergency. An
increase in price alone does not necessarily
constitute price gouging and technically, price
gouging only occurs when the trigger event has been
met in a particular state. If there exists evidence
Of collusive activity amongst retail, suppliers or
manufacturers, federal antitrust laws could be
applicable.

*The Federal Trade Commission monitors gas prices
and investigates possible antitrust violations as it
pertains to other materials (i.e. like petroleum and
water, etc).
The primary purpose of any business is to engage in
activities that will result in earning a profit.
While capitalizing on an opportunity to increase
profits in the wake of a natural disaster may be
deemed morally wrong, it is perhaps a solid,
justifiable business tactic.It is plausible
that"opportunism"may beone common denominator
among these sellers who boost prices;arguably so
is survival.
Inmost cases (with the exception of earthquakes)
government agencies can anticipate apotential disaster and
pass this awareness on to the public.The affectedpeople
who mayeventuallybecome consumers of these limited
basic goods, have some opportunity to purchase
and/or acquire supplies such as gas and water prior
to the actual catastrophe.
If they—the government—do not take steps to prepare
for at least the temporary shortages, then they set
themselves up to deal with the short and long term
effects of what may be considered price gauging.
From a business standpoint, their lack of
preparation presents a means to maximize on the
sale of highly-demanded goods or services. When
products such as ice, plastic and fuel become
scarce, sellers must alsospend more to maintain
their inventories and like most businesses, must
ultimatelytransfer those extra costs to the
consumer that demands them...and still accomplish
the goal of making a profit.
Isn't this the "American" way?
In fact, this strategy of perceived "price
gouging"might even beimplementedto prepare the
business for such a time that its own inventory is
depleted and the costs of replenishing their stock
is multiplied.
My answer does not even attempt to address the
matter from a legal standpoint...I am not equipped
to do so. I can only offer my viewpoints from the
perspective of a business owner.
If I were a shop owner in Louisiana or Florida and
I had access to certain goods that were scare and
in high demand, I would consider the current and
long term needs of my business and family. From
that perspective, I would have no problem raising
the prices of these items and getting as much money
for them as possible.

While price boosting is a mere facet of a thriving
economy, one thing is certain, businesses
thatengage inthe perceived "price gouging"
practices will only be able to do so for limited
the law of supply and demand states that a shortage
in supply or a surge in demand will increase the
price of goods.
However, during a natural disaster
such asKatrina, itbecomes a fine line between
raising prices to substantiating a shortage in
supply and price gauging. Many sellers take
advantage of the vulnerability of consumers and
their increased need for these pertinent products
during such time; however it is wrong to do so.
Many states have laws prohibiting price gouging
for this very reason. However, there is a point
where these sellers will need to increase their
prices, but their reason for doing so should only
be substantiated by their increased costs.

Consumers will eventually refuse to engage in
commerce with the seller, and/or certain
government/ law enforcement agencies will step in
and impose fines and other penalties.
While the principles of business and economics
support raising the price of goods to take
advantage of an increase in demand, I believe that
companies also have the duty to be socially
responsible and conscious of other economic factors
including an already high cost of living, shortage
of employment, lack of resources, etc.
In the aftermath of a hurricane or other disaster,
I think that it is of poor judgment to heighten
prices just because of an increase in demand, but
if the sellers face an additional cost in obtaining
those goods, they have to pass that cost on to
consumers in order to defray some of the additional
costs they incurred.

Lindsay Guion,
Harvard University

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