Congress Tells FTC to Define Price Gouging

Mankiw said that just because someone buys cheap and sells high doesn't mean that person is price gouging. A gasoline retailer who raises prices on a cargo he already had in his tanks is no different from someone who sells a house for well more what was paid for it years earlier.

Last November, FTC Chairman Deborah Platt Majoras testified before a Senate committee that "price gouging laws that have the effect of controlling prices likely will do consumers more harm than good." She added, "the commission remains persuaded that federal price gouging legislation would unnecessarily hurt consumers. Enforcement of the antitrust laws is the better way to protect consumers."

Though the FTC has in the past avoided coming up with a definition for price gouging, many state governments and attorneys general have defined it. Usually the definitions are limited to pricing actions taken during emergencies or catastrophes, such as hurricanes. In Florida, the attorney general's Web site explains that Florida law "compares the price of the commodity or service to the average price charged over the 30-day period prior to the declared state of emergency. If there is a 'gross disparity' between the prior price and the current charge then it is price gouging."

But what's a "gross disparity"? "Gross disparity would be determined by a jury of Floridians," said Charlie Crist, Florida attorney general and a Republican candidate for governor. "I don't think it would be too hard to give it some significant definition in the mind of a juror who would probably be very upset with someone trying to take advantage of a catastrophe."

Crist, whose office has a toll-free price gouging hotline, said he called representatives of five major oil companies to his office this week as part of an inquiry into whether oil company mergers had reduced competition and violated antitrust laws. "I don't think it's rocket science," Crist said. "I don't think there are secret agreements among them. All they have to do is go out and look at the sign across the street to see what's happening."

He added: "I'm all for profits, but not for profiteering."

Some federal investigations have pointed toward oil company manipulation. A Senate committee investigation in 2002 alleged that at least some big oil companies had tried to limit supplies to boost prices. In 2004, the Government Accountability Office concluded that the wave of oil industry mergers in the 1990s had indeed reduced competition and led to higher prices, albeit by amounts that seem like mere drops in the tank now. The GAO study said that oil mergers had contributed to gasoline price increases of as much as two cents a gallon on average nationwide.

The question of whether oil companies consciously limited refining capacity to drive up prices would fall under established case law on price fixing and antitrust. When it comes to defining price gouging, Congress has passed the burden to the FTC.

"Beyond this, all is the fog of bad and devious legislation," said William D. Nordhaus, a professor of economics at Yale University. He said that for the FTC to come up with a price gouging definition "will presumably involve rule-making, which will require all kinds of cost and benefit inquiries, and will not emerge until after the election, or even after gas prices have declined."