Price gouging definition is vague, complex

What looks like price gouging to a consumer driving past a gas station might not be out of bounds in the eyes of the law.

Virginia law prohibits sellers from charging “unconscionable” prices for gasoline and other necessities after a natural disaster if the price “grossly exceeds” what they charged before the disaster.

But what does “unconscionable” mean, and how big of a price increase is “gross?”

“You can’t put a number on it,” said Tucker Martin, spokesman for Attorney General Bob McDonnell. “There is no benchmark price in the statute.

“You can’t just drive down the street and say, ‘That’s price gouging.’”

The state currently has 30 inspectors in the field looking into

thousands of complaints to see whether gas stations actually broke the law last week.

That’s when gas prices jumped across many parts of Virginia over concerns about Texas oil refineries closing because of Hurricane Ike.

Prices jumped at least 50 cents per gallon at many Lynchburg-area gas stations.

Statewide the average price went up 24 cents from Friday to Monday, according to AAA Mid-Atlantic.

Nearly 2,300 gas buyers in Virginia have called the Virginia Department of Agriculture and Consumer Services (VDACS) to accuse gas stations of hiking prices unfairly. A number of those complaints came from Lynchburg.

So if the Lynchburg area price went up twice as much as the statewide average, is that fodder for price gouging charges?

Marion Horsley, spokeswoman for VDACS, repeated that the law simply states that prices cannot be “unconscionable.”

“Granted, that’s not the most specific thing,” she said.

The Virginia Post-Disaster Anti-Price Gouging Act was passed in 2004 to keep the prices of necessary goods and services — like water, food, gasoline and tree-removal services — from spiking in a declared state of emergency.

Joel Hesch, a law professor at Liberty University, said about a dozen states have similar laws, and that several others are considering them.

He said they are easier to investigate than laws against price fixing, which would actually require proving that business owners were making secret agreements to keep prices high.

Price gouging can be proven by looking at receipts and invoices, he said. Those receipts also can reveal some factors that can absolve gas station owners, according to the 2004 law.

According to Martin, investigators looking into a gas station’s price have to consider:

- the price before and after the disaster;

- what an accused gas station’s competitors are charging; and

- whether the cost of providing the product has gone up.

“If the cost of the supplier actually went up, there’s nothing wrong with raising the price” for consumers, Hesch said.

That provision explains why some gas stations hiked their prices considerably on Friday.

David Johnston, owner of the local convenience store chain Big Horn Market, said Monday that he sets his retail price according to the cost of replacing the gas the store is selling.

When he raised his price 25 percent — from $3.99 to $4.99 per gallon — on Friday, it was because the cost of getting more gas had gone up, he said.

He said his station was accused of gouging, but he explained his increased costs to a state investigator.Only three Virginia gas stations have been formally charged with price gouging. All three were Northern Virginia stations that raised their prices by 50 to 100 percent after Hurricane Katrina made landfall in 2005, according to documents filed in those cases.

Those gas stations settled the cases out of court by agreeing to give refunds to customers who had paid the high prices.

Martin said it could be awhile before any charges could come forward on the recent price spikes. The three previous charges came four months after the hurricane, he said.

Though 2,300 Virginia drivers reported that prices last week were foul play, some economists argue that a price increase is no crime.

Joseph Turek, an economics professor at Lynchburg College, said prices are determined by supply and demand, and that price gouging doesn’t really exist.

A rise in gasoline prices helps prevent a shortage, he said.

“If the price rises, the individual gas stations … will take extraordinary steps to get more gas,” he said.

Limiting the price also limits suppliers’ efforts to bring in more. “If there is no gas, you’re going to be worse off,” he said.

Turek added that there are some cases where prices are criminal, such as when a station raises its price in order to promote consumer panic. “If that were the intention, certainly it would be inappropriate and unethical.”