Crisis Pricing
Virginia Public Law and Legal Theory Research Paper No. 2024-64
Virginia Law and Economics Research Paper No. 2024-29
Emory Law Journal, forthcoming
75 Pages Posted: 26 Oct 2024
Date Written: October 25, 2024
Abstract
Extraordinary times beget extraordinary measures. Multiple national emergencies during the past quarter century have generated a pitched debate as to whether, and to what extent, a crisis justifies deviations from fundamental legal rules. That debate has often focused on constitutional law and has produced sharply divergent views. Some theorists advocate a “business-as-usual” approach eschewing emergency deviations, but societies rarely hold that course. More pragmatic scholars would permit some emergency measures but also defend fundamental social structures that have great value even during emergencies.
Emergencies, however, pose challenges not only to constitutional rules but to law generally, including the basic structures of law governing commerce. In ordinary times, most developed countries rely on markets rather than government edicts to control the exchange of goods and services. One great benefit of markets is that they distill vast quantities of information into easily understood signals—prices—that help individuals and firms decide what to buy and sell. Yet deeply held social norms against profiting from others’ hardships during emergencies frequently lead governments to impose price controls, anti-gouging laws and other crisis pricing rules that supplant markets, destroy the informational value of market prices, and produce long queues, hoarding, and illicit side markets that can deepen rather than ameliorate the emergency.
More pragmatic approaches are needed for crisis pricing, and one promising approach is “zero-profit pricing”—an approach that can accommodate social norms against profiting off a crisis and yet still preserve the extraordinarily important informational function of market pricing. Zero-profit pricing has antecedents in common-law crisis doctrines such as the necessity defense and general average contribution; may be more equitable and more efficient than existing approaches to emergencies (including a business-as-usual approach); and, most importantly, can minimize rather than exacerbate the misery caused by a crisis.
Keywords: Price-gouging, antigouging, Price ceilings, crises
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