Profiteering, Price Fixing and Price Gouging: What They Mean and How They Affect You

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Profiteering, Price Fixing and Price Gouging Defined, Explained and Compared

Have you ever wondered why some products or services become so expensive during a crisis or an emergency? Or why some companies seem to collude with each other to keep prices high and limit competition? Or why some sellers charge outrageous prices for essential goods that people need to survive?

If you have, then you may have encountered some examples of profiteering, price fixing and price gouging. These are three terms that describe different ways of manipulating prices to make unfair or excessive profits. In this blog post, we will define, explain and compare these three concepts and how they affect consumers and markets.

What is Profiteering?

Profiteering is the act of making a large or unfair profit by sketchy means. An example of profiteering is pay-day loans, which typically come with exorbitant interest rates that make them difficult to pay back. The company offering the loan then makes an unfair profit because of their inflated interest rates¹

Profiteering is similar to price gouging, but it can be distinguished by being long-term and widespread and by involving non-essential goods or services. For example, profiteering can occur when companies hoard goods during an emergency to resell them at exorbitant prices later. An example is the New York sporting goods retailer who bought more than 5.6 tons of masks, surgical gowns, hand sanitizer, gloves, and other critical supplies in March and April 2020 to sell in a dedicated section of his store²

Profiteering is not technically illegal unless it involves committing a crime. However, it is often considered unethical and immoral, as it exploits people’s needs and vulnerabilities.

What is Price Fixing?

Price fixing is the act of agreeing with competitors to set a minimum or maximum price for their products or services. For example, electronics retail companies may collectively fix the price of televisions by setting a price premium or discount³

Price fixing is a way of controlling supply and demand. With price fixing, companies agree to fix their prices to maintain their hold on the market. In other words, different companies may price their products at the same high price so that people have no choice but to buy it at that price, and then everyone selling that product makes a greater profit.

Price fixing is illegal in many countries, as it violates antitrust or competition laws. Price fixing is considered anti-competitive and harmful to consumers and markets, as it reduces choice, quality and innovation.

What is Price Gouging?

Price gouging is the act of raising the prices of goods or services to a level much higher than is considered reasonable or fair. Usually, this event occurs after a demand or supply shock. This commonly applies to price increases of basic necessities after natural disasters⁴

Price gouging is a form of exploitation of supply and demand. Price gouging occurs when sellers take advantage of a temporary situation of scarcity or urgency to charge excessively high prices for goods or services that people need to survive or cope. For example, price gouging can occur when gas stations increase their prices when there is a gas shortage in the area³

Price gouging is illegal in many countries, especially during a state of emergency or disaster. Price gouging laws vary by jurisdiction, but they usually define price gouging as selling a product above a certain percentage of its average price in the past 30 days. Price gouging is considered unethical and immoral, as it harms consumers and society.

How to Compare Profiteering, Price Fixing and Price Gouging?

Profiteering, price fixing and price gouging are three different ways of manipulating prices to make unfair or excessive profits. However, they have some similarities and differences that can be compared as follows:

• Similarities: All three concepts involve charging higher prices than the market value or the cost of production. All three concepts are often considered unethical and immoral, as they exploit consumers and harm markets. All three concepts can occur in any industry or sector, depending on the circumstances and opportunities.
• Differences: Profiteering is a general term that can apply to any sketchy means of making a large or unfair profit, while price fixing and price gouging are more specific terms that refer to particular methods of manipulating prices. Profiteering can involve non-essential goods or services, while price fixing and price gouging usually involve essential goods or services. Profiteering can be long-term and widespread, while price fixing and price gouging are usually short-term and localized. Profiteering is not always illegal, while price fixing and price gouging are often illegal.

Conclusion

Profiteering, price fixing and price gouging are three concepts that describe different ways of manipulating prices to make unfair or excessive profits. They have some similarities and differences that can be compared and contrasted. As consumers, we should be aware of these concepts and how they affect us and the markets. As citizens, we should support laws and regulations that prevent or punish these practices and protect our rights and interests.