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A price theory of price gouging

Author

Listed:
  • Scott Duke Kominers

    (Harvard Business School Harvard University
    Harvard Business Becker Friedman Institute for Research in Economics University of Chicago
    Department of Economics Harvard University)

  • Piotr Dworczak

    (Northwestern University
    Group for Research in Applied Economics (GRAPE))

Abstract

We propose an economic definition of price gouging: Price gouging occurs in a competitive market when lowering the price from the market-clearing level would increase total Utilitarian welfare. We then use price-theoretic tools to characterize determinants of price gouging in a setting with income heterogeneity and non-quasi-linear preferences that induce a motive to redistribute across agents. The circumstances under which price gouging occurs in our framework align with the contexts covered by existing anti‒price gouging laws. By proposing a definition of price gouging that does not appeal to any non-economic notions of (un)fairness or excess, we hope to provide a pathway for follow-up theoretical and empirical research.

Suggested Citation

  • Scott Duke Kominers & Piotr Dworczak, 2025. "A price theory of price gouging," GRAPE Working Papers 104, GRAPE Group for Research in Applied Economics.
    • Handle: RePEc:fme:wpaper:104
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    File URL: https://grape.org.pl/WP/104_Kominers_website.pdf
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    More about this item

    Keywords

    price gouging; price control; market design;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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