Price Rise is Normal after Disaster, but Laws Protect from Gouging
September 03, 2017
Over $4 for a gallon of gas? $42 for a case of bottled water? Stories like these are emerging not only from the areas hardest hit by Harvey, but also from cities affected by gas shortages such as Dallas.
Texas, like Virginia, has laws aimed at preventing and prosecuting these types of price gouging. In Texas, hotlines have been established for consumers to call with any complaints of price gouging following the Hurricane Harvey disaster.
The worst, though, may be yet to come. As Mike Zugelder, professor of business law at ODU's Strome College of Business notes, "Disaster victims seeking to salvage and rebuild are among those consumers with the least meaningful choice and bargaining power. Unfortunately they are a perfect mark for unconscionable contractors." He notes that the Virginia law and those adopted by other states like it are attempts to address exploitation of by those who would prey on consumers when they are at their weakest.
Here in Virginia, consumers have already seen gas prices rise at the pump due to shortages caused by Harvey. Prices for other products will also rise based on shortages in key commodities and ingredients manufactured in Houston. Some manufacturing plants will likely be closed for months in order to clean up and re-build after the flooding, leading to long-term shortages. Such shortages will drive prices up for many products.
But these rising prices are normal economic consequences of a natural disaster, far different than overcharging for a case of water.
Jeff Tanner, Dean of the Strome College of Business, notes that some companies have taken the opposite tact. "Big Lots, a discount retailer, dropped their prices in the Dallas area on items needed for disaster relief, such as bottled water and diapers, to support those taking these items to Houston." He mentioned his sister had taken advantage of those prices when loading up a trailer of supplies bound for the Houston area. "While it may seem like good business to hold on to such products until shortages cause prices to rise, doing the right thing will pay off in the long run for Big Lots and other retailers who follow suit."
Jim McIngvale, also known as Mattress Mack, will likely benefit greatly when Houston consumers begin buying furniture to replace what they lost in their stores. Mack, who opened up his Houston-area furniture stores as shelters for Hurricane Harvey evacuees and sent his own trucks out to rescue families in distress, has a long history of philanthropy in Houston and is much-loved in the area, so much so that there is a move to make August 26th Mattress Mack Day in Houston. What receives next to no press is the fact that he gives away 35 to 50 households of furniture every year to deserving families in the Houston area. Mack simply says, in a story posted on KHOUN, "We're just trying to help them out because they've done so much for us over the years."
While the law is there to protect consumers from unscrupulous predators, it's nice to know that there are some businesses that react differently to disasters.