Price gouging packs a punch

Most U.S. states have laws targeting essentials like fuel and food during emergencies, but they are largely symbolic. Purell

Around the world, governments are sounding alarms about price gouging and threatening crackdowns as the coronavirus outbreak spreads fear and a surge in demand for hand sanitizers and face masks.

But it’s unlikely that vendors will stop demanding $400 for a two-pack of 2-ounce bottles of Purell, which usually goes for $10, anytime soon. The anti-gouging laws on the books are tricky to enforce when demand suddenly outstrips supply.

Sometimes even just defining a violation is difficult, said Geoffrey Rapp, a law professor at the University of Toledo who studies the phenomenon.

“While there’s an instinctive reaction that prices shouldn’t swing wildly after a major natural event, man-made disaster or something like the current coruscation scare,” he said, “there’s a blurry line between responses to the natural movement of supply and demand and those that should truly be prohibited.”

Most U.S. states have laws targeting essentials like fuel and food during emergencies. They are largely symbolic, Rapp said, because prices often jump before an emergency is declared.

In fact, there is one economic school of thought that anti-gouging rules shouldn’t exist at all because they prevent the laws of supply and demand from efficiently resolving shortages.

Efforts are underway nonetheless. In Washington state, Attorney General Bob Ferguson said his office is probing price-gouging allegations and has encouraged residents to report instances. A New York lawmaker introduced a bill that would impose fines of up to $25,000 on stores selling face masks at “unconscionably excessive” prices.

Massachusetts Sen. Edward Markey complained in a letter to Amazon.com Inc. Chief Executive Officer Jeff Bezos that the company isn’t doing enough, citing the $400 Purell example.

Some governments in Asia are threatening profiteers with fines and jail time, and regulators in Europe are examining similar moves.

The price-gouging alarms come as debate rages over whether the coronavirus will be inflationary or deflationary. On one hand, shuttered factories in China are creating supply shortages, which could easily lead to a short-term jolt to consumer prices. On the other, there’s the risk the spread of the virus across continents causes people to cut back on spending en masse, tipping the global economy into recession.

For online retailers including Amazon and eBay, the immediate issue is how to react to surges on their sites. Their algorithms are designed to fight the scourge and they assign employees to manually monitor items. But that’s often a whack-a-mole exercise, with products getting pulled off only to quickly reappear.

Sky-high prices are spilling over to peer-to-peer marketplaces like Craigslist and OfferUp. One entrepreneur in Seattle is making his own hand-sanitizing concoction with aloe gel and rubbing alcohol, packing the green slime in empty sports-drink bottles and selling it on Craigslist for $45 a jug.

There’s no getting around that panicked shoppers want things right now. Nine of the top 10 search terms on Amazon since Feb. 26 were coronavirus-related, according to Helium 10, which tracks the site.

Amazon searches for hand sanitizer over the past 30 days spiked to 1.5 million on March 1, up from 90,000 on Dec. 1, according to Helium. Prices for some best-selling hand sanitizers doubled.

The demand is rippling on to survival-related products. Sales of freeze-dried food on Amazon rose 432% this week compared to the previous week and emergency food supplies rose 391% in the same period, said Michael Lagoni, chief executive officer of Stackline, an e-commerce data analytics firm.

Prices online tend to shoot up first; brick-and-mortar stores that still use mostly physical price displays, which are time-consuming and laborious to change, often simply run out of stock.

The Amazon algorithms that determine which products people see punish merchants that let their products run out, so jacking up costs under ordinary circumstances is a matter of survival. It might not be price-gouging but just machines doing their jobs.

“Amazon was completely overwhelmed by demand due to coronavirus,” said Juozas Kaziukenas, founder of New York e-commerce research firm Marketplace Pulse. “Pricing software is designed to raise prices so products don’t run out of stock before they’re replenished — which causes prices to spike during demand surges.”

Amazon, eBay and OfferUp said they’re monitoring their sites, though the rules being followed aren’t clear. Amazon, for instance, can punish merchants that post irregular prices but the policy isn’t specific about exactly what constitutes a violation.

“There is no place for price gouging on Amazon and that’s why our teams are monitoring our store 24/7 and have already removed tens of thousands of offers for attempted price gouging,” an Amazon spokesman said. “We are disappointed that bad actors are attempting to take advantage of this global health crisis and, in addition to removing these offers, we are terminating accounts.”

OfferUp has taken down hundreds of listings that violate its pricing policies, a company spokesman said. OfferUp wouldn’t say precisely how it calculates a violation but the spokesman said $100 for a container of hand sanitizer would likely fit the bill.

EBay, which has similar pricing policies as Amazon and OfferUp, on Thursday announced it was banning new listings for face masks, hand sanitizer and disinfecting wipes “due to regulatory restrictions across the United States.” Craigslist didn’t respond to requests for comment.

California Gov. Gavin Newsom on Wednesday credited Amazon with taking swift action, a sign that online platforms are making progress in convincing regulators they’re victims rather than perpetrators. The reality is that Amazon can’t control the situation in a marketplace that’s home to hundreds of millions of products sold by more than 2 million independent merchants.

“At the scale Amazon operates, it’s very hard to prevent,” said Guru Hariharan, a former Amazon executive and founder of CommerceIQ, which makes software to help businesses sell products on the site. “The machine is gigantic and unstoppable at this point, which makes it hard for a human to control.”

Tribune Wire

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