Customers, Businesses Lose in Veto of Price Gouging Legislation

Member Group : PA Manufacturers' Assn.

Last week Governor Tom Wolf vetoed SB 1172, saying that the proposed changes to Pennsylvania’s Price Gouging Act would undermine consumer protections during a declared emergency, when the law kicks in automatically. Taking the governor’s veto message in its literal sense would mean that 235 of 253 lawmakers who voted for the bill (including nearly all of his Democratic colleagues) were guilty of one of two egregious governance sins when they sent the bill to his desk: they either didn’t know what was in the bill or didn’t care whether it would unfairly burden consumers.

Neither is true. Lawmakers heeded the advice of business advocates, large and small, up and down the supply chain, that the common-sense changes proposed in the legislation will only further protect consumers from market distortions during and after emergencies.

“Governor Wolf’s veto of this bipartisan consensus legislation is very regrettable,” said PMA President & CEO David N. Taylor. “Without these necessary changes to the law, consumers and the businesses that serve them will be the losers in the long run.”

PMA joined the PA Chamber of Business & Industry, the PA Food Merchants Association, the Pennsylvania Retailers Association, the Pennsylvania Restaurant and Lodging Association, and other statewide business groups in releasing a statement promising to continue to work for reform of the law – just as many other states have reformed their price gouging laws over the past few years.

“A blanket veto of this overwhelmingly bipartisan legislation is the wrong move for consumers and businesses in our Commonwealth,” the statement from the business groups said. “We will continue to work with the legislature and governor to address this important issue.”

SB 1172, sponsored by Sen. Randy Vulakovich (R-Allegheny), would have given the governor the discretion of activating the Price Gouging Act separately from the declaration of an emergency. Giving the governor that discretion would allow the law to be applied along the lines of its original intent: when a damaging storm or other disaster threatens the supply lines of basic, necessary consumers goods and services. But now the law is being applied during the governor’s repeated emergency declarations over the opioid crisis. The opioid and heroin epidemic is an emergency, to be sure, but one that has no impact on the supply of goods and services.

One noted market economist and pricing strategy consultant, Rafi Mohammed of the University of Virginia, called the application of the law during an opioid crisis “insane.”

“There’s absolutely no reason why prices would go up during an opioid crisis as they would in a natural disaster,” Mohammed said.

The automatic trigger also leaves business, especially smaller ones, exposed to legal action if prices are raised an “unconscionably excessive” amount. With an impossibly ponderous qualifier like that in the law, business have a right to feel vulnerable, says Adam Millsap, assistant director of the L. Charles Hilton Jr. Center for the Study of Economic Prosperity and Individual Opportunity at Florida State University.

“A business could be coming off a big sale just as an emergency is declared,” said Millsap. “What’s unconscionably excessive supposed to mean to them when they go to raise prices after the sale.”

Along those lines, the bill would have provided guidance as to what prices would not violate the law, including safe harbors for prices that are 10% or less above specified benchmarks or consistent with external market prices.

The bill would have also limited the duration of pricing restrictions to 15 days, with extensions up to 60 days allowable. With the repeated emergency declarations over the opioid crisis, there is now no end in sight to the restrictions.

Price gouging laws on any level do more harm than good, Millsap says.

“Prices are signals to both producers and consumers,” he said. “Higher prices tell producers to get out more product and they also tell consumers it’s time to economize.”

Missing in all this is the fact that most businesses of late have advertised they would keep their prices stable during a disaster. In some cases, they have even offered free services; most notably the free phone service offered in the aftermath of Hurricane Michael in the Florida Panhandle.

“You can call it good marketing or good will,” Mohammed said. “It’s probably a little of both, and it’s working.”

The legislation the governor vetoed would have had zero impact on the state’s effort to combat the opioid epidemic in Pennsylvania, and the legislation would have given consumers and businesses the reassurance that they won’t be unfairly burdened by a law whose application has no role in the crisis.