New York’s Failed Economic Case for Price-Gouging Enforcement
A major winter storm across northern New York State in January 1998 snapped power lines and left thousands without electricity, as temperatures plunged. In the small town of Chazy, just south of the Canadian border, a local hardware store stepped up. Chazy Hardware had just one generator on hand, but it managed to locate 54 more on a Saturday in Burlington, Vermont. The following morning, a driver and truck made the icy hours-long round trip to bring them back. Forty of the generators were sold on Saturday, and most of the rest sold Sunday afternoon.
And then the State of New York fined Chazy Hardware for price gouging.
Price-gouging laws are promoted as a way to protect disaster-stressed consumers from greedy businesses, but the state’s enforcement mostly centered on how Chazy Hardware allocated the costs of the emergency trip. Generators sold in advance reflected the store’s ordinary markup, and it allocated all of the extraordinary costs of the trip to the 14 additional generators they were able to bring in. The state Office of the Attorney General said those costs should have been averaged across all the weekend’s sales, and brought the price-gouging suit because of that differing view. Had Chazy Hardware done nothing—like every other store in town—they would have been in the clear.
In February 2025, New York Attorney General Letitia James proposed new rules to clarify how the state enforces its price-gouging law. Alongside those rules came a staff report, “The Economic Case for Price Gouging Laws.” It’s a welcome attempt to ground enforcement in economic reasoning. Unfortunately the economic reasoning is thin, the analysis is badly one-sided, and the resulting rules—like the one that tripped up Chazy—still risk punishing businesses for the sort of extraordinary efforts emergencies require.
In a recent regulatory comment, I explained these concerns in detail. While legislators ought to repeal state price-gouging laws, attorneys general are tasked with enforcing the laws on the books. A solid grounding in economics is essential to improve enforcement and aid compliance efforts.
The AG’s Rulemaking and Its Economic Turn
The new rules James proposed earlier this year to clarify how New York enforces its price-gouging law are part of a years-long process initiated in 2022. The goal is to clarify how pre-disruption prices are determined, how cost increases can justify price changes, and how a seller’s market share may trigger heightened scrutiny. Anti-gouging laws have long relied on vague terms like “unconscionably excessive,” leaving merchants, enforcers, and courts to guess at the boundaries.
Clarification is desperately needed in this space. The idea is to ground enforcement in economic reasoning, rather than moral appeals. Price-gouging laws are economic regulations and, like other economic regulations, their enforcement ought to rest on a clear-eyed understanding of tradeoffs and real-world consequences.
Unfortunately, the attorney general’s staff report does not provide that understanding. Its economic analysis is heavily one-sided, and the use of evidence is uneven. Studies critical of price-gouging laws are scrutinized or dismissed, but supportive articles are accepted uncritically. The report denounces critics for relying on theory and lacking empirical grounding, but then leans heavily on theoretical claims of its own that lack empirical grounding.
Where it engages real economics, the logic falters: the report notes that short-run supply is typically inelastic, then proposes rules likely to make supply even less responsive. The staff report claims modern enforcement will be subtle and economically informed, but its reasoning is rough, and the rules offered by the state are blunt.
What the Economics Actually Say
While the staff report positions itself as a response to economists’ skepticism, it fails to engage it seriously. Most economists oppose price-gouging laws because they believe these laws make conditions worse for consumers, not because they don’t mind consumer exploitation. When prices are allowed to rise, they do more than ration scarce goods. They draw new supply into the market. Suppressing prices discourages demand and supply responses, often leaving communities with longer lines and fewer goods when they’re needed most.
After Hurricanes Katrina and Rita in 2005, the Federal Trade Commission (FTC) investigated gas-price spikes and found that most increases tracked rising crude-oil prices and supply disruptions—not manipulation or abuse. The New York staff report complains that the FTC defined price gouging too conservatively. But New York’s own record suggests the FTC’s standard wasn’t far off: of the more than 3,000 complaints the AG received in late 2005, just 15 resulted in formal charges. The lesson? Actual price gouging is rare, and enforcement risks penalizing retailers who find themselves in a tight spot or—like Chazy Hardware—have gone to extraordinary efforts to boost supplies.
More recent work by Timothy Beatty, Gabriel Lade, and Jay Shimshack on post-hurricane gasoline pricing confirms the point. Studying gasoline stations across multiple hurricanes, they found that average retail margins often fell after landfall, and that most stations held prices flat or even discounted fuel. Extreme price hikes were rare and short-lived. One possible reason: reputational concerns. Another: fear of price-gouging enforcement.
Fear of price-gouging enforcement can backfire. Daniel Scheitrum, K. Aleks Schaefer, and Tina Saitone document how grocery retailers froze egg prices during the COVID-19 pandemic, even as wholesale costs spiked. Many cut promotions, restricted sales, or simply left shelves empty. Price-gouging litigation didn’t prevent harm; rather, it deepened shortages. In 2009, the South Carolina attorney general found the same effects in a survey of gasoline retailers: some gas stations chose to shut down after hurricanes rather than resupply at higher costs, because they feared price-gouging enforcement.
The most vivid example of harm comes from W. David Montgomery, Robert Baron, and Mary Weisskopf, who modeled the effects of proposed federal price-gouging laws. Their simulation showed that such laws would have increased the overall harm caused by Hurricane Katrina by nearly $3 billion. Crucially, the additional losses would have been concentrated in the two states hit hardest by the storm. When prices can’t rise, goods don’t move to where they’re most needed.
The New York AG’s staff report scoffs at the Montgomery, Baron, & Weisskopf report’s modeling for assuming straightforward price controls, rather than the more sophisticated price restraints that New York says it employs. Ironically, under the enforcement logic defended in the AG’s report, Chazy Hardware likely would have kept its truck at home, all of the generators would have remained warehoused in Vermont, and 50-plus New York households would have remained in the icy dark back in January 1998.
In other words, the law would have concentrated harms on those struck by the disaster.
Clarifying the Rules, Preserving the Wiggle Room
New York’s price-gouging law has been on the books since 1979, but it has been for most of its history enforced with minimal regulatory guidance. The attorney general’s office and the courts have long been content to rely on “we know it when we see it” standards—reminiscent of Justice Potter Stewart’s famous remark on obscenity. Terms like “unconscionably excessive” or “unfair leverage” are left undefined or only loosely framed, applied in hindsight, and often without any clear benchmark. That ambiguity makes compliance difficult, especially with a law like New York’s that can be enforced even without any official declaration of emergency.
The proposed rules aim to fix some of the law’s vagueness. They attempt to clarify how pre-disruption prices should be calculated, what kinds of cost increases justify price hikes, and how market share interacts with enforcement presumptions. It’s an overdue effort—guidance of this sort could have helped 40 years ago. That it’s only arriving now reflects how little attention has been paid to the mechanics of enforcement, even as the statute has remained in force.
But details matter. And in this case, the details often undermine the promise of clarity. The rules specify formulas, thresholds, and procedures, but the AG’s office also insists it will retain discretion to avoid unjust outcomes. In effect, they offer more elaborate definitions that nonetheless preserve “we’ll know it when we see it” as the ultimate rule. The result is a framework that appears precise but still leaves businesses guessing.
Several provisions illustrate the problem:
- §?600.5 benchmarks “pre-disruption” prices using median sale prices prior to an emergency, even for sellers that use dynamic pricing or face abrupt shifts in costs. The rule penalizes responsiveness, rather than rewarding it.
- §?600.8 defines recoverable cost increases so narrowly that common emergency efforts—expedited shipping, hazard pay, overtime—may fall outside the safe zone, especially for smaller firms with less formal documentation.
- §?600.9 seeks to extend enforcement to out-of-state sellers offering goods online, who almost by definition would be expanding supplies into New York, and almost all of whom lack local market power.
The staff report promises subtle, economically informed enforcement. But the state’s inability to pin down price gouging precisely means that even well-intentioned sellers will continue to operate under a cloud of uncertainty—albeit a slightly smaller cloud—if these rules go into effect.
The Laws Are the Problem, but Discretion and Good Economics Still Matter
The deeper problem isn’t the rules, but the law itself. Price-gouging statutes weren’t built for consistency or economic logic. Their terms are vague, their goals are muddled, and they fail to distinguish market power from effort. Repeal would be the best outcome. That’s a job for the New York State Legislature.
But under current law, Attorney General James has broad discretion in enforcement: deciding which cases to bring, how to interpret ambiguous terms, and what remedies to pursue. That discretion matters. It gives the attorney general scope to apply economic reasoning and to implement the law more wisely. The rulemaking process should clarify how that discretion will be used and explain the economic rationale behind it.
New York’s attempt to supply an economic foundation for enforcement is welcome. Other states with price-gouging laws should do the same; they should ground their actions in a real understanding of how markets work. But for economic analysis to do that job, it must do more than dress up gut-level enforcement in the language of efficiency.
Improving enforcement means focusing on cases where sellers mislead customers, engage in fraud, or work to worsen supply constraints—not punishing transparent efforts to meet demand. It means distinguishing opportunism from urgency. And it means resisting the impulse to treat every sharp price increase as an abuse.
Even with a flawed law, economically grounded enforcement can reduce harm, but only if it’s backed by better analysis than the state has offered so far. (And for the record, New York—like every other state—already has consumer-protection laws that prohibit fraud and deception. Repealing price-gouging laws wouldn’t prevent the state from going after actual bad actors.)
Final Thoughts from a Reluctant Adviser
Chazy Hardware’s story illustrates what can go wrong when good intentions meet vague laws and blunt enforcement. The attorney general’s office now claims a more modern, economically informed approach, but the proposed rules and the accompanying staff report suggest otherwise. They still risk punishing quick actions and chilling exactly the kinds of responses upon which communities rely in a crisis.
In comments submitted during the rulemaking process, I offered a detailed critique of the state’s economic rationale and selected proposed rules. Even for laws one might question—or oppose entirely—rigorous analysis can help regulators avoid unintended consequences and reduce harm. This critique is offered in that spirit: not to defend the law, but to press for better governance within the framework we have.
Until repeal is on the table, discretion matters. Economics can and should be used to improve enforcement, but only if the available theoretical and empirical work on price gouging is taken seriously and applied in a balanced way. The AG’s staff report falls far short of what’s needed to support clear, consumer-focused enforcement.
If there’s to be a standard for enforcing price-gouging laws, let it be one grounded in consumer welfare, not in after-the-fact outrage dressed up as economic analysis.