The global pandemic of COVID-19 and the scarcity of toilet paper have brought a rare opportunity to study the effects of price manipulation laws in a time of widespread emergency.
Many US states have price manipulation laws, which aim to avoid charging excessive prices for essential products and help ensure that consumers have access to these products in times of emergency.
According to Desert News, research recently published by Gavin Roberts, assistant professor of economics at Weber State University, and Rik Chakraborti, assistant professor of economics at Christopher Newport University in Newport News, Virginia, suggest that price manipulation laws are likely to contribute to the scarcity of essential products.
The research published in the Journal of Private Enterprise, found “robust evidence that anti-gouging laws increased (Google) searches for hand sanitizer, and some evidence of similar impacts on toilet paper. These results corroborate predictions regarding the shortage-inducing or aggravating tendencies of anti-gouging laws, and they inform the ongoing public debate on anti-gouging laws and their potential effects during public health emergencies like COVID-19.”
The article cites a petition that asks state legislatures to repeal the price fraud laws “to ensure health and safety during the coronavirus pandemic.” The petition said in part, “all of these laws are a form of price control, and they cause the shortages of the very products that can ensure our health and survival during this coronavirus epidemic, such as masks, sanitizers, gloves, testing kits and other essential medical, hygiene and food supplies.”
Roberts and Chakraborti analyzed numbers of online searches for toilet paper and hand sanitizer, as well as lotion as a control variable. They compared states that implemented bans on price gouging from Feb. 15 to March 25 to states that did not.
At the beginning of the last year, searches for “where to buy toilet paper” peaked nationwide during the week of March 15-21, while interest in hand sanitizer peaked the week prior.
The study controlled for other variables that might influence the results, including population density, average household size, population, racial demographics and rates of intrastate travel as measured by cellphone data, since some consumers may search for products in person rather than online.
“When there are shortages, people search more online for goods that are in high demand,” Roberts said in a university press release.
If prices for hand sanitizer and toilet paper were allowed to rise, people would be less likely to hoard them, Roberts said. “We would hope that that would push back on that ‘I’m going to hoard’ mentality.”
However, price gouging laws curb price increases in times of emergency. Consequently, “you can imagine those people out there that have basements full of toilet paper, right? Well, they got that basement full of paper at a low price,” Roberts said, explaining price gouging laws essentially subsidized this behavior.
While many retailers instituted purchase limits, their effect is limited because consumers come up with workarounds such as visiting multiple stores, reentering a store or dropping by the same store daily to buy the maximum amount of a limited product.
“Generally, we’d prefer probably a higher price, but at least everybody can find the toilet paper that they need,” he said.
In areas without price gouging laws, abnormally high prices are temporary because they incentivize buyers and sellers to behave in ways that resolve shortages while also lowering price, the university press release states.
The journal articles concludes that the “results inform the recently rekindled policy debate about anti-gouging laws. The naïve appeal on moral grounds or resulting political popularity notwithstanding, economists have long argued that anti-gouging laws, which intend to restrict disaster-induced price surges, end up causing shortages. So long as empty in-store shelves lead to increased web searches for consumer products, our results confirm these shortage-inducing tendencies of anti-gouging laws.”
Read the full story on the Desert News website.