Running head: PRICE GOUGING IN THE UNITED STATES 1

Price Gouging in the United States

Landon S. Hendrix

First Colonial High School Legal Studies Academy

PRICE GOUGING IN THE UNITED STATES 2

Abstract

This paper will address the issue in the United States of price gouging. He will go over the

multiple aspects of price gouging in itself. He will address the issues within it as well as the

different types whether it is after a natural disaster or the gouging of medication. The writer will

finally suggest solutions to remedy the issue at hand.

PRICE GOUGING IN THE UNITED STATES 3

Price Gouging in the United States

Price Gouging Laws

Price gouging is an impending issue in the United States today, which does not only bring

a person’s moral integrity in question, but also raises the question of what can be done to prevent

this issue from occuring. Price gouging is defined in the dictionary as “the practice of raising

prices on certain types of goods and services to an unfair level, especially during a state of

emergency” ("Price Gouging - Definition, Examples, Cases," 2016). There is a large gray area in

terms of pricing goods which allows businesses to often times take advantage of people in need

of their services, whether they are in need of medication or some form of essential good when

there is a natural disaster that has occurred. There are, of course, some laws present to try and

prevent businesses from unreasonably gouging prices in times of need such as the Virginia Post

Disaster Anti-Price Gouging Act § 59.1-526, which explicitly explains that it is unlawful to raise

the price an exorbitant amount but does not specify parameters in which gouging are explicitly

explained ("Virginia Law," n.d.). Also, the business may be penalized whether they are fined or

sued, but the law does not have much to offer in terms of protecting the consumer, and the

policies of what is accepted in terms of price gouging tends to vary from state to state.

Luckily, Virginia is a state that is equipped with anti-price gouging legislation, but the

same cannot be said for all 50 of the United States. Only 34 out of 50 states have anti-price

gouging legislation set in place to date. The fact that there are not laws present in all 50 states

presents a problem of how big of an issue of price gouging is in the eyes of state governments

and how prevalent it is in today’s society in terms of regularity. Price gouging is most definitely

a tremendous issue today, more than ever in the United States, whether it is a medication or a
PRICE GOUGING IN THE UNITED STATES 4

business that is raising their prices after a natural disaster such as a hurricane or something of

that nature.

Martin Shkreli

There is a multitude of instances where price gouging can be present, but the most

apparent seem to be dealing with medications and the other one being gouging in natural

disasters in terms of essential goods and services. In terms of medication, a big example of price

gouging not being regulated, if not the figurehead today of price gouging, is a man by the name

of Martin Shkreli. Raising the price through the roof for a medication that people need to survive

brings a person’s entire morality into question. He is well known for inflating the price of the

medication called Daraprim. The purpose of this medicine is to fight parasitic infections for

AIDS patients, which means the medicine is a matter of life and death for people who have those

infections. He increased the price from an affordable $13.50 per pill to an outrageous price of

$750.00 per pill. This ultimately priced out many of the patients who need this medication and

painted Shkreli as a monster to the public. The issue at hand is the fact that nothing could be

done about his actions despite how disgusted the Judge was with Mr. Shkreli’s moral compass.

He was taken to court and left with no apparent charges (Weissmann, 2015).

Due to the nature of Shkreli’s case, it raised eyebrows around the country about what

could actually be done about people hiking up the prices of medication. There are companies that

sell medications for a fraction of the cost offered by the majority of pharmaceutical companies.

An example would be a company based in San Diego that can sell a version of the drug

Daraprim for a price as little as $1 per tablet. The price point from this company is almost hard to

fathom due to its low prices, but due to the competition of the market, the small companies will
PRICE GOUGING IN THE UNITED STATES 5

not beat out Shkreli, and the reach of the cheaper medication does not go out nearly as far as

what is ideal (Weissmann, 2015).

The medical industry takes advantage of people way too often. The majority the industry

seems to take the advantage of the most is the elderly. In 2015 as much as $457 billion was spent

on prescription drugs in the United States. The most popular brand named drugs rose in price

208% between 2008 and 2016 (Dowd, 2017). With the advances in technology society is having,

medication should no way shape or form become less affordable. With all the research and

development performed over the years, companies should be finding cheaper, more efficient

ways to produce pharmaceuticals on a large scale. The pharmaceutical industry has one of the

highest profit margins among industrial sectors. The profit margin is a whopping 42%

(Anderson, 2014).

There is a great deal of corruption within the pharmaceutical industry in itself. The drug

known as H.P. Acthar Gel is used for treating infantile spasms and multiple sclerosis. The drug

itself can be life saving for infants with those problems present. A company called Mallinckrodt

that produces the drug was fined $100 million for raising the price from $40 a vial to $34,000. A

single course of treatment of a child could cost in excess of $100,000. Most people would view

this act as a cynical one in which it appears the company values their profit more than the lives

of infants with medical issues that could potentially kill them without the help of the medicine

that the company provides (Company, n.d.).

The problem with the medical industry is that companies can charge any amount they

desire because there are no federal regulations regarding the price of prescription drugs.If a

company has the rights to the drug, it means that many times there are not going to be readily

available substitutes for the drug being offered by the big name companies. The fact that the
PRICE GOUGING IN THE UNITED STATES 6

prices are not regulated leaves a gray area as to how the prices of drugs will be adjusted.The

price of a drug is ultimately left up to the morality of the owners as well as their target for profit

margin.

Large, big name companies can also be found to be unfairly raising their prices. CVS was

found to be charging people with insurance more than people who were uninsured. A woman

paid $165.68 for a medication that would have only costed $92 if she did not have insurance.

Due to the actions of CVS, many customers are unknowingly being overcharged for their

medications that could be substantially cheaper (Chuck, 2017).

Epipens

The price of Epipens has gone up dramatically in the past decade. At one point the

Epipen costed as little as $57 in 2007 and grew to $500 today. The increase was stated to be

because of the change of the landscape of the public’s health insurance. The increase of price is

astounding regardless of the reasons behind it. Many people who have severe allergies need

Epipens, and they are being priced out of a product that they desperately need. If they were to

have an allergic reaction, it could be a matter of life and death. 6% of children have food

allergies and up to 18% have a reaction to something they eat in school. This price increase not

only presents a problem to the parents, but also the schools who buy them due to the fact that the

expiration on an Epipen is only a year; therefore, a new one has to be purchased every year

(Chris Woodyard and Mary Jo Layton, 2016).

The drug company Mylan is now facing a lawsuit for racketeering for changing the price

of Epipens multiple times and charging an amount in excess of what is even remotely close to

the production cost. It was stated that the reason for the jump in price of the Epipens was due to

payments the company had made for rebates from companies such as CVS Caremark, Express
PRICE GOUGING IN THE UNITED STATES 7

Scripts, and Optum RX. Mylan was reported to change the list price of Epipens as much as 17

times. Seventeen times is outrageous, this is not merely a small price adjustment, but a red flag

that the company is actively looking for more of a profit from what is even remotely reasonable

in terms of production cost vs the price point being presented to the public (Mangan, 2017).

Natural Disasters

There is also a huge issue in natural disasters regarding businesses increasing their prices

to take an unfair advantage on the economy due to lack of resources and desperation of people to

get the things they need. A large amount of price gouging that occurs is during some kind of

natural disaster, especially hurricanes.

Hurricane Sandy

Hurricane Sandy was a devastating storm that took lives in the Northeast United States,

Canada, and the Caribbean. It took as many as 147 lives. There was at least 4.8 million people

without power in 15 states including the district of Columbia. Due to the lack of electricity, there

was a shortage of gas ("Hurricane Sandy Fast Facts," 2017). As a result of the shortage of not

only gas, but readily available resources, many companies found this as an opportunity to make

some money by using the desperation of people to their advantage by raising the prices of their

services because people in need will do whatever they can to get the things they need even if that

means paying a an exorbitant amount for a good or service. Acting Attourney General John J.

Hoffman stated, "We simply will not allow businesses to victimize vulnerable residents, who

already are suffering hardships during a declared state of emergency”(Trenton, 2013). It is

apparent that people were going to try and take advantage to the system due to the state of that

the part of the country is in.

PRICE GOUGING IN THE UNITED STATES 8

It was reported that businesses in New Jersey were raising prices after Hurricane Sandy.

The prices were increased all around the state ranging from 30-60%. The fact that there were

eight companies that were reported of shooting up the prices of their goods/services, shows that

there is an issue at hand with price gouging in the country (Associated Press / NBC New York,

2012).

Hurricane Katrina

Hurricane Katrina was an extremely destructive storm that is considered to be one of the

worst hurricanes recorded in the United States. It caused an estimated $100 billion in damage

and touched as far as 90,000 square miles. It left many peoples’ lives in shambles for those who

lived through the storm. Katrina took the lives of about 2,000 people (History.com Staff, 2009).

Many companies jumped on the fact that people are in need of their goods and services. It was

reported that a week after Hurricane Katrina, gas prices raised 46 cents per gallon. About 7,000

gas stations around the nation were reported have raised their gasoline prices around the nation.

The inflation in price is astounding. The price gouging was so apparent that Congress ordered an

investigation of the pricing of the gasoline industry, which in turn slowed down the production of

oil and natural gas in the gulf of Mexico. Due to this injustice, not only did the people lose

money out of their own pockets, but the industry of oil and natural gas lost millions due to the

fact that they had to be slowed down for investigation (McNamara, 2006).

Hurricane Irma

Hurricane Irma was recorded to be the strongest Atlantic basin Hurricane ever recorded

outside the Gulf of Mexico and the Caribbean Sea. Due to the severity of the hurricane, 5.6
PRICE GOUGING IN THE UNITED STATES 9

million people were ordered to evacuate. The hurricane maintained its power for as long as 37

hours. The storm touched 650 square miles. It made streets inundated with water and ripping

everything apart in its path. Leading up to Hurricane Irma hitting Florida, many people were

seeking flights out of the state of Florida at this time to avoid the devastating effects of the

Hurricane ("Hurricane Irma," 2017).

Delta airlines raised the price of a flight in coach from $547.50 to an astounding

3,258.50. The jump in price utterly outraged the public and caused an unnecessary uproar in the

midst of a dangerous storm (Sorkin, 2017). There were many complaints of price gouging, it was

counted to be as much as 8,000 regarding increases in prices. A couple of days after the storm, it

was reported that gas stations were charging anywhere from $6 to $8 a gallon and there were

other complaints involving people being charged twice the regular price for a hotel room

(McMahon, 2017).

Hurricane Harvey

Hurricane Harvey was one of the most destructive storms recorded in United States

history. It was a category 4 storm that resulted in $180 worth of damage. In the height of the

hurricane, as much as one third of Houston was literally underwater. The death toll of Harvey

was as much as 70 people and about 3900 homes were without power. Shortly after Hurricane

Harvey hitting, when everyone was vulnerable and shaken up, there were multiple accounts of

prices being raised through the roof. It was reported that cases of water were being sold for as

much as $99 per case. Also, the price of gas was going from $4 per gallon to an outrageous $10

dollars per gallon in some instances (Fox, 2017). There was a multitude of lawsuits taking place

after the storm. In Texas it was reported that a gas station called Bains Brothers charged as much

as 6.99 a gallon and another station called Encenical Fuel Shop charged 8.99 and 9.99 a gallon
PRICE GOUGING IN THE UNITED STATES 10

for gas. It was also reported that a hotel called Robsown Enterprises changed their rate for a

room 3 times ("AG Paxton Files Suit Against Three Businesses for Price Gouging During

Hurricane Harvey," n.d.).

Hurricane Andrew

Hurricane Andrew was a category 5 storm with up to 185 mph winds. The storm

devastated the Bahamas and the southeast of the United States in 1992. It caused 65 deaths and

destroyed 63,000 homes. It also took a heavy toll on the economy with an estimated $26.5 billion

lost("What Hurricane Andrew Did to South Florida in 1992 (PHOTOS)," n.d.). Hurricane

Andrew is the reason that Florida put anti price gouging legislation in place. A hotline by State

Attorney Charlie Crist received over 3,300 complaints as well as started 5 lawsuits regarding

price gouging. The office of the Florida Attorney General states the following:

The law bans unconscionable increases in prices in the rental or sale of essential

commodities, which would include lumber, ice, water, chemicals, generators, shelter and

other necessary goods and services once a state of emergency has been declared by the

governor. It is also unlawful to raise hotel rental rates or housing lease rates under

Florida’s price gouging laws. Other states may have similar laws, which also impose

penalties on violators.The Florida Office of the Attorney General investigates every

allegation of price gouging. Pursuant to Florida’s price gouging laws, the Office of the

Attorney General compares the reported price of the commodity or service during the

declared state of emergency to the average price charged over the 30-day period prior to

the state of emergency. If there is a “gross disparity” between the prior price and the

current charge, it is considered price gouging. It is not considered price gouging if the

seller can justify the current price by showing an increase in the price of their supplies or
PRICE GOUGING IN THE UNITED STATES 11

market trends. Additionally, the price gouging statute does not apply to non-essential

luxury goods like alcoholic beverages and cigarettes.Violators of the price gouging

statute are subject to civil penalties of $1,000 per violation and up to a total of $25,000

for multiple violations committed in a single 24-hour period. In addition to the civil

penalties for price gouging, state law criminalizes the sale of goods and services to the

public without possession of an occupational license. Violators of the law can be charged

with a second-degree misdemeanor(n.d.).

Due to multiple accounts of reported price gouging across the country during natural

disasters, it is apparent that the issue of price gouging is extremely prevalent in the United States.

The fact that price gouging is a recurring issue in just about every natural disaster in recent years

issue indicates that the legislation in place is in fact not up to par with what is acceptable. The

problem with many of the price gouging laws is that many of the laws limit people from

charging over 10% of regular retail price. The problem with upping the prices of goods, results in

people gathering an exorbitant amount of supplies and causing a shortage. Businesses are also

hesitant to restock supplies due to the price of transporting the supplies through potentially

dangerous situations due to the natural disaster. The company in this instance would be at a

losing money (Mohammed, 2014).

Economists View

Economists view price gouging as a necessary evil for a number of reasons. Although

price gouging seems morally wrong, but some economists would disagree. They see banning

price gouging as bad economics. They argue that if the prices were lower, people would

overstock supplies and gouge the products for their own personal gain. They also believe in the

principle of conservation in the sense that if prices are higher, then people will not buy as much
PRICE GOUGING IN THE UNITED STATES 12

which in turn, makes less of a shortage in food, supplies, etc… because people will not be

willing to pay the higher prices to buy those supplies in bulk ("3 Good Things about "Price

Gouging"," 2017).

Possible Solutions

Looking back at the laws regarding price gouging, they are heavily flawed where they

are in place and penalize the business owners with a mere fine and do not necessarily protect the

consumer in the first place. despite the gougers getting fined, it does not always end up in the

consumer getting their money back. While all this may very well be true, it does not solve the

question of morality when charging people an amount well in excess of what the baseline price

is. Price gouging laws need to be eliminated or modified and be regulated by the Federal

government instead of state by state due to the fact that in order for something to actually make a

difference, it needs to be standardized in order for anything to be regulated properly.

A solution presented to at least help price gouging in terms of a natural disaster is to let it

happen instead of trying to prevent it with efficiency and compromise. The idea is to take a

certain percentage of the excess price and put it towards the a good cause such as efforts towards

rebuilding after a natural disaster. Instead of slowing down the process of the flowing economy,

finding a way to regulate this would be a better option than the legislation that is currently in

place due to the fact that the laws hurt the economy more than they help due to the fact that it

inhibits companies from making a profit and slows the process of production. The legislation in

itself is flawed in the sense that it does not protect the consumer in the first place ("3 Good

Things about "Price Gouging"," 2017).

One solution people seem to overlook is that the president, if he so desires, can use

something called the “important relief” law, which is a provision found in the Medicare
PRICE GOUGING IN THE UNITED STATES 13

Modernization Act of 2003 that remains unused. The law would be used to give the FDA the

power to allow imports of pharmaceuticals if they are seen as able to save money and safe for

Americans to use. The drug known as Daraprim used by Shkreli is sold overseas for around 2$

per pill. A drug known as Cosmogen, which is a cancer drug, is $1,400 per injection in the

United States. Overseas, the drug is being sold for as little as $20 to 30$ per injection. If drug

companies were to import drugs from trusted nations, than it would reduce the need for

companies to feel the need to change their prices so much (Wu, 2017). If the president chooses to

put this law into play, it would solve a huge chunk of the issue of price gouging at hand. People

would be getting the medication they desperately need for a fraction of the price. This law would

extremely benefit the poor.

Price gouging is an immense issue in the United States. Businesses looking to make a few

extra bucks prey on the public when people are desperate for their goods/services. Price gouging

ranges from buying something as simple as a case of water, to paying for a drug that can save a

loved one’s life. The instances of price gouging usually involve changing the prices after a

natural disaster, such as a hurricane, especially on the east coast. The other most common

occurrence, which seems to happen frequently, more now than in the past, and that is gouging

the price of pharmaceuticals. A person’s moral compass is put into question when one shoots up

the price of a product regardless of production cost vs the price point of what they actually sell it

for. They will look for any way to make some extra money instead of worrying about the

wellbeing of society in itself. People such as Martin Shkreli are willing to dramatically shoot up

the price of a drug through the roof for their own personal benefit regardless of if they are pricing

someone who is really sick and are in need of the medication the company produces. Also, every

hurricane that has occured in the past 20 years has numerous reports of businesses charging
PRICE GOUGING IN THE UNITED STATES 14

outrageous prices whether it is water, gasoline, or hotel rates. There is, in fact legislation to help

prevent gouging in some states, but not in all 50, and the laws are more of a nuisance than

helpful due to the fact that it only will fine business owners a set amount and does not

necessarily protect the consumer from price gouging. There are better solutions than simply

putting legislation in place due to the fact that legislation only slows down the process of the

economy because everything has to be stopped in order to investigate and take the necessary

measures. One solution is to let price gouging happen but compromise by finding a way for the

Federal Government to regulate taking a percentage of the earnings by the price change and use

it towards rebuilding efforts after a natural disaster. The other solution is to use a law that has

remained unused and would allow the FDA to allow drugs to be imported into the United States

which would allow for cheaper prices. Both of these options appear to be good options and

should be acted upon in order to better the country.

References

AG Paxton Files Suit Against Three Businesses for Price Gouging During Hurricane Harvey. (n.d.).

Retrieved from https://www.texasattorneygeneral.gov/news/releases/ag-paxton-files-suit-against-three-

businesses-for-price-gouging-during-hurr

Anderson, R. (2014, November 06). Pharmaceutical industry gets high on fat profits. Retrieved from

http://www.bbc.com/news/business-28212223

Associated Press / NBC New York. (2012, November 09). 8 NJ Businesses Sued Over Sandy Price Gouging.

Retrieved from https://www.nbcnewyork.com/news/local/Price-Gouging-New-York-New-Jersey-Gas-

Sandy-Lawsuit-178073721.html
PRICE GOUGING IN THE UNITED STATES 15

Chris Woodyard and Mary Jo Layton. (2016, August 25). Massive price increases on EpiPens raise alarm.

Retrieved from https://www.usatoday.com/story/money/business/2016/08/22/two-senators-urge-

scrutiny-epipen-price-boost/89129620/

Chuck, E. (2017, August 09). CVS Charges More for Generic Drugs Paid for With Insurance, Lawsuit

Claims. Retrieved from https://www.nbcnews.com/news/us-news/cvs-charges-more-generic-drugs-

paid-insurance-lawsuit-claims-n791156

Company, T. (n.d.). Drugmaker fined $100 million for hiking price of drug for infants 85,000%. Retrieved

from http://money.cnn.com/2017/01/18/news/drug-pricing-mallinckrodt-ftc-fine/index.html

Dowd, C. (2017, October 01). Prescription drug price gouging: What seniors need to know. Retrieved from

http://www.foxbusiness.com/features/2017/10/01/prescription-drug-price-gouging-what-seniors-need-

to-know.html

Fox, M. (2017, August 30). Price gouging during Hurricane Harvey: Up to $99 for a case of water, Texas AG

says. Retrieved from https://www.cnbc.com/2017/08/28/price-gouging-during-hurricane-harvey-up-to-

99-for-a-case-of-water-texas-ag-says.html

History.com Staff. (2009). Hurricane Katrina. Retrieved from http://www.history.com/topics/hurricane-

katrina

Hurricane Irma. (2017, September 07). Retrieved from http://www.cnn.com/specials/hurricane-irma

Hurricane Sandy Fast Facts. (2017, October 19). Retrieved from

http://www.cnn.com/2013/07/13/world/americas/hurricane-sandy-fast-facts/index.html

Mangan, D. (2017, April 03). Mylan hit with racketeering suit over big price hikes of EpiPen. Retrieved from

https://www.cnbc.com/2017/04/03/mylan-hit-with-racketeering-suit-over-big-price-hikes-of-

epipen.html

McMahon, P. (2017, September 09). Hurricane Irma: Price gouging, scam complaints now exceed 8,000.

Retrieved from http://www.sun-sentinel.com/news/weather/hurricane/fl-reg-gouging-hurricane-irma-

20170907-story.html

McNamara, M. (2006, May 23). FTC Pinpoints Post-Katrina Gas Gouging. Retrieved from

https://www.cbsnews.com/news/ftc-pinpoints-post-katrina-gas-gouging/
PRICE GOUGING IN THE UNITED STATES 16

Mohammed, R. (2014, August 21). The Problem with Price Gouging Laws. Retrieved from

https://hbr.org/2013/07/the-problem-with-price-gouging-laws

Mohammed, R. (2014, August 21). The Problem with Price Gouging Laws. Retrieved from

https://hbr.org/2013/07/the-problem-with-price-gouging-laws

Mylan's CEO Tells Congress the EpiPen Price Hike Was 'Fair'. (n.d.). Retrieved from

http://fortune.com/2016/09/21/mylan-ceo-epipen-price-hike/

Price Gouging - Definition, Examples, Cases. (2016, January 14). Retrieved from

https://legaldictionary.net/price-gouging/

R. (2017, September 06). 3 Good Things about "Price Gouging". Retrieved from https://mises.org/blog/3-

good-things-about-price-gouging

Sorkin, A. R. (2017, September 11). Hurricane Price Gouging Is Despicable, Right? Not to Some

Economists. Retrieved from https://www.nytimes.com/2017/09/11/business/hurricane-price-

gouging.html

Star-Ledger, D. G. (2012, November 09). Eight companies sued by N.J. for post-Sandy price gouging.

Retrieved from http://www.nj.com/news/index.ssf/2012/11/eight_companies_sued_by_nj_for.html

Trenton, J. O. (2013, July 23). Hurricane Sandy price gouging settlement totaling $283K reached with 8 N.J.

businesses. Retrieved from

http://www.nj.com/mercer/index.ssf/2013/07/mercer_county_hotels_settle_with_state_over_alleged_p

rice_gouging_during_sandy.html

Virginia Law. (n.d.). Retrieved from https://law.lis.virginia.gov/vacodepopularnames/virginia-post-disaster-

anti-price-gouging-act/

Weissman, R. (2004, September). Drug Price Gouging OK'd. Multinational Monitor, 25(9), 6-7. Retrieved

October 2, 2017, from ProQuest Central K-12.

Weissmann, J. (2015, October 23). The Small Pharma Company Trying to Foil Martin Shkreli's Price-

Gouging Scheme. Retrieved from

http://www.slate.com/blogs/moneybox/2015/10/23/martin_shkreli_s_daraprim_price_gouging_scheme

_might_be_foiled.html
PRICE GOUGING IN THE UNITED STATES 17

What Hurricane Andrew Did to South Florida in 1992 (PHOTOS). (n.d.). Retrieved from

https://weather.com/news/news/remember-what-hurricane-andrew-did-to-soflo

Wu, T. (2017, April 20). How to Stop Drug Price Gouging. Retrieved from

https://www.nytimes.com/2017/04/20/opinion/how-to-stop-drug-price-gouging.html

Wu, T. (2017, April 20). How to Stop Drug Price Gouging. Retrieved from

https://www.nytimes.com/2017/04/20/opinion/how-to-stop-drug-price-gouging.html

(n.d.). Retrieved from

http://myfloridalegal.com/pages.nsf/Main/E73752FFC1A191AF85256CC9005DC192

(n.d.). Retrieved from

https://search.proquest.com/docview/1936958680/CC1477C7EF8943B7PQ/1?accountid=378

(n.d.). Retrieved from

https://search.proquest.com/docview/274658196/BCEAC2FB4C5A4043PQ/2?accountid=378

5
PRICE GOUGING IN THE UNITED STATES 18

.
PRICE GOUGING IN THE UNITED STATES 19
PRICE GOUGING IN THE UNITED STATES 20
PRICE GOUGING IN THE UNITED STATES 21
PRICE GOUGING IN THE UNITED STATES 22