Imagine you’re at the market looking for supplies on your hurricane prep list, and you arrive at the battery display. Now, you definitely need batteries—things like radios, flashlights, toys and other small electronic devices can become essential when the power goes out during a hurricane. But this four-pack of D-cell batteries is sporting a sticker price that is considerably higher than the one you saw at the gas station last week.
What’s going on?! This is price gouging, and it is probably the most insidious retailer practice imaginable during times of high societal stress—like when a hurricane is on the way. There are laws to protect consumers against this practice, but it’s not always as cut-and-dried as it should be.
In fact, economists find it quite difficult to define price gouging, as the laws of supply and demand pretty much legitimize and validate the practice. So, when the onset of COVID-19 swept over the western hemisphere, and bottles of hand sanitizer became worth their weight in gold, sellers on eBay, Amazon and Etsy made a killing!
We all remember going on Amazon and marvelling at the three-figure prices of half-gallon bottles of hand sanitizer and uttering, “I would never!”
Well, someone did. That’s the rub: when the supply is low, the demand gets high so the holder of the product everyone wants can name their price, and they’ll usually get what they’re asking! Is it fair? Absolutely not! Is it ethical? An economist might argue that it is—it’s how capitalism works, and, whether calm seas or perfect storms are on the horizon, capitalism will thrive.
Economist Amy Smith, of Advanced Economics Solutions, breaks price gouging down quite succinctly:
“Price gouging—from an economist standpoint, the opinion is it couldn’t exist because it’s really all about supply and demand,” she told NPR recently. “I mean, you just go back to your Economics 101, right? If there’s less of a good, then you got to increase the price in order to rationalize demand.”
Fortunately, most governments have enacted laws to protect citizens from this truly distasteful practice. In Bermuda, the practice has existed and has been duly outlawed.
“The public and local retailers are reminded of the legislation prohibiting price gouging, particularly during times of national emergencies,” the government of Bermuda reminds. The government defines price gouging as “a seller increasing the prices of goods, services or commodities to a level much higher than is considered reasonable or fair, and is considered exploitative, potentially to an unethical extent. Usually, this event occurs after a demand or supply shock. Common examples include price increases of basic necessities after hurricanes and other natural disasters.”
A local retailer, who requested to speak anonymously, described price gouging in Bermuda, saying: “I believe it depends on who is describing prices as being ‘gouged.’ Some consumers are quick to turn to social media when they see the same product in another store that is $1 more or $10 more. The consumer doesn’t know if the shipping charges have increased, or if the overseas supplier has increased the first cost. At the end of the day, the retailer has a percentage margin that is set based on many variables—first cost, shipping, customs duty, local trucking, labour costs, rent, electricity and so on.”
This makes a lot of sense. We know that there are several “overhead” costs associated with living and shopping in Bermuda, so “price gouging” can often be dictated by fluctuations in costs outside of our small island home.
Nevertheless, there are penalties that come with being found guilty of the offence of price gouging in Bermuda. Under the Consumer Protection Act 1999, the penalty on summary conviction is six months in prison or a $10,000 fine or both, plus the Magistrate can also grant compensation.
While giving a reasonable synopsis of what price gouging in Bermuda can often be mistaken for above, our local retailer does admit that the practice is decidedly unacceptable during times of high societal stress.
“It is not a business practice that should take place at any time, especially during a time of crisis, when the community is in a panic or in distress.”
Describing their own experiences with price gouging locally, our retailer discloses, “I have heard of stories where tarpaulin and plywood prices have doubled (and tripled!) when the regular, go-to suppliers have exhausted their supplies. Typically, these are independent, here today, gone tomorrow, operations.”
This illustrates another way price gouging gets around the laws of the land. Typically, it will be difficult for established suppliers and retailers to get around governmental regulations, but quick pop-ups that can meet demands in times of need, but don’t necessarily have an established, regulated existence outside of times when demand is high, can name their price.
It’s a difficult question. Obviously, the best way to protect yourself from paying exorbitant prices for necessary supplies before or after a hurricane is to stick with established, regulated retail or wholesale outlets. But when they run out of what you need the actual need doesn’t just go away, does it?
So, you get desperate and buy a litre of hand-sanitizer for $95, or a four-pack of batteries for $25, or whatever tarpaulin and plywood you need for exponentially more than you’d pay otherwise. Supply. Demand.
The laws of economics don’t acknowledge price gouging, and living in Bermuda complicates the thing even further. Our local retailer relates another story:
“I read stories of what individuals refer to as price gouging, but it generally appears that they do not have a complete sense and understanding of the economic chain and what leads to the final price to the consumer. It is very easy to scan an item and say, ‘See, it’s only $19.99 online, or in a big box overseas retailer.’ But how does that $19.99 product end up on a shelf here? It needs to come a long way, with many costs attached before the Bermuda consumer can pay for it. We are in the middle of nowhere, with limited resources available locally.”
As the saying goes, it costs to live in paradise!