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How Price-Gouging Regulation Undermined COVID-19 Mitigation: Evidence of Unintended Consequences
Originally published in The Center for Growth and Opportunity
Price-gouging regulations cap prices of necessary goods during times of emergency. While doing so may seem noble, these laws limit the availability of much-needed goods. They also increase physical searches for goods, which wastes consumers’ time.
During a pandemic such as COVID-19, an increase in physical searches also threatens to raise infection rates. In this paper, authors Rik Chakraborti and Gavin Roberts explore this possibility using smartphone location data to measure social contacts in commercial spaces.
Many states instituted price-gouging restrictions during the outbreak of COVID-19. These laws reduced sellers’ incentive to supply critical goods such as hand sanitizer, masks, and toilet paper. At the same time, demand for these goods surged to unprecedented levels. Limits on prices combined with high demand led to shortages. That meant customers had to visit multiple stores to find the product they were looking for, undermining social distancing measures.
The authors’ analysis finds that states that implemented price-gouging laws had increased social contacts in commercial spaces. Both poor and wealthy individuals experienced these increased contacts, though wealthier individuals had a smaller increase. The increased contacts in these states led to an average of 12 extra daily deaths in the month after the price-gouging law was introduced. This represents a 25 percent increase in new daily deaths in April 2020, relative to if there had been no price regulation.
While well-intended, price-gouging regulation worked directly against social distancing policies. Regulation-driven shortages increased in-store searches, leading to more virus transmissions. Wealthier individuals, however, needed to search less, and were less affected. This uneven burden suggests price-gouging regulations fail in their goal to help poorer households. These striking results suggest caution should be used when considering price-gouging regulation.