Wooden ladder placed on a stack of gold coins.

Price Gouging in the Time of COVID-19

By James Langenfeld, Chris Ring, Luke Gelber

June 29, 2020

COVID-19 has had devastating effects on health and the economy. The economic issues caused by this pandemic have resulted in increased scrutiny of firms’ pricing, which is likely to continue over the coming months.

Statements made by the Department of Justice (the DOJ) and state Attorneys General indicate that there may be investigations of price gouging and hoarding affecting major digital platforms and retailers – and some private class actions have already been filed. Firms can take a variety of actions to reduce the likelihood of a challenge, but for many firms justifying price increases can be difficult. Moreover, digital platforms such as Amazon, eBay, and Etsy are put in a difficult position, since it is not clear whether and how they are responsible for regulating price increases by third parties that use these platforms to connect with buyers. Despite these serious concerns, to date most price gouging complaints to regulators have been dealt with informally, and so have not resulted in prosecutions.

This article summarizes U.S. price gouging laws, recent cases, and their implications for different types of firms.

Federal Laws and Enforcement

At the federal level, Section 102 of the Defense Production Act prohibits “accumulating scarce materials … for the purpose of resale at prices in excess of prevailing market prices.” On March 23, 2020, President Donald Trump signed Executive Order 13910, invoking the Defense Production Act and delegating authority to the secretary of the Department of Health and Human Services (“HHS”) to “designate certain health and medical resources … and to designate any material as a scarce material … the supply of which would be threatened by persons accumulating the material either in excess of reasonable demands of business, personal, or home consumption, or for the purpose of resale at prices in excess of prevailing market prices.”[1]

The Department of Justice has warned about hoarding and price gouging in the context of COVID-19, with the Office of the Attorney General stating that “where appropriate, the Department will investigate and prosecute those who acquire vital medical supplies in excess of what they would reasonably use or for the purpose of charging exorbitant prices to the healthcare workers and hospitals who need them.”[2]

On March 24, 2020, the DOJ and HHS set up a task force on price gouging. The DOJ stated:

‘Our FBI agents and other law enforcement agencies are tracking down every tip and lead they get and are devoting massive federal resources to this effort. All individuals and companies hoarding any of these critical supplies, or selling them at well above market prices, are hereby warned they should turn them over to local authorities or the federal government now or risk prompt seizure by the federal government.’[3]

A Bloomberg article elaborated, “In a case that provides telling information about how the Justice Department intends to deal with violations of the Defense Production Act, the DOJ arrested two men for conspiring to obtain scarce N95-quality medical masks and resell them through a commission scheme at exorbitant prices.”[4]

A later news article stated “A New York man became the first person federally charged with hoarding and reselling tons of ‘COVID-19 essentials’ at a huge markup, according to a U.S. Department of Justice press release.”[5] “The Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI), among others, issued dire warnings about the potential increase in fraud, price gouging, and similar crimes whose perpetrators would seek to take advantage of the panic surrounding the virus.”[6]

At this stage, it is not clear whether the federal government will mount any substantial challenges to price increases, and if they do, it is not clear what the DOJ will consider an adequate defense for passing on cost increases.

State Laws

Thirty-five states and the District of Columbia have laws that make some form of price gouging illegal for at least some goods or services during a declared state of emergency.[7] By early April 2020, every state with anti-price gouging legislation had declared a state of emergency due to the COVID-19 pandemic.[8]

Many state anti-price gouging laws may leave the exact definition of price gouging open to interpretation. Just fifteen states define price gouging as a specific percentage price increase above pre- emergency prices, which includes California (10 percent), New Jersey (10 percent), and Pennsylvania (20 percent), while other states prohibit some form of “unconscionable” or “grossly excessive” price increases without defining such amounts.[9] In either case, identifying price gouging typically involves a comparison of prices charged before an emergency to prices charged during the emergency and measuring the increase. In many states, such as New York, the comparison also applies to the amount charged for the same or similar goods or services obtainable by consumers in the relevant trade area, so sellers looking to enter a new market during an emergency could also face allegations of price gouging.

Specific products targeted in the California law barring price gouging include “consumer food items or goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, housing, transportation, freight and storage services, or gasoline or other motor fuels.”[10] A few states – such as Vermont, Illinois, and Indiana – limit the goods and services subject to price gouging violations solely to fuels such as gasoline and heating oil. However, most states have laws that list certain essential goods and services that are subject to the anti-price gouging laws, such as food, emergency supplies, medical supplies, pharmaceuticals, drinking water, building/construction supplies, storage services, and clothing. Additionally, the anti-price gouging laws of certain states have provisions so that the goods and services subject to such laws are not limited only to those listed.

In many states, excessive pricing in an emergency can be challenged by the state or by private parties. The vast majority of states permit price increases during an emergency that may otherwise be prohibited if the seller’s underlying costs have risen. In New Jersey, for example, where an “excessive” price increase is defined as anything greater than 10 percent, larger increases are allowable if “the increase in price is attributable to additional costs imposed by the seller’s supplier or additional costs of providing the good or service during the state of emergency.”[11] Left unstated is whether the seller’s ordinary markup remains allowable after accounting for increased costs, or whether the seller can only pass on cost increases dollar for dollar.

The limited evidence indicates that sellers must be prepared with detailed evidence to support their price increases. Appeals to uncertainty or risk, and the use of “conclusory assertions” without hard evidence that the seller did indeed face higher costs, may be insufficient as they appear to have been in a handful of cases in New York.[12] In particular, new entrants responding to demand for key goods during an emergency may not have pre-emergency prices, costs, or margins to use as a comparison. They may be able to obtain general information from public sources or third-party discovery, but these sources may not provide reliable information quickly.

Enforcement of State Laws

Enforcement actions have been taken against different types of firms, ranging from large retailers to digital platforms to mom and pop stores.[13]

Cases Against Traditional Firms

The Texas Attorney General filed a lawsuit against Cal-Maine Foods alleging that, “In Texas, the increased demand for eggs has resulted in egg prices jumping 300% or more for generic eggs.”[14] The Complaint states: “Cal-Maine is the dominant egg supplier in Texas,”[15] and “During the COVID-19 pandemic, the market has driven generic egg market prices over $3 per dozen and Cal-Maine has charged its customers accordingly … Cal-Maine has not experienced any supply issues or other disruptions that are driving it to charge more for eggs. It is simply charging more because … the pandemic caused market demand to jump.”[16] The complaint notes that Cal-Maine Foods “is not a middleman, passing along the cost of eggs it purchased from a supplier. … Cal-Maine’s egg supply has remained stable, and production and distribution costs have been stable as well.”[17]

Class action lawsuits have been filed in Texas and California against a long list of food retailers, producers, and wholesalers including Cal-Maine Foods, Rose Acre Farms, Inc., Costco Wholesale Corp., and The Kroger Co. Both suits concern “the despicable and illegal practice of price-gouging of essential groceries, specifically eggs, in the midst of the ongoing and unprecedented pandemic.”[18] Both complaints claim that the defendants have raised prices beyond what might be acceptable after accounting for rising costs.[19]

In New York, Attorney General Letitia James filed a lawsuit against wholesaler Quality King for raising the price of Lysol Disinfectant Spray and Lysol Wipes by as much as 95 percent. The Attorney General “learned of Quality King’s price gouging after receiving complaints from consumers about retail stores’ high prices.” Like many states, New York’s anti-price gouging legislation allows price increases during an emergency if higher prices are attributable to a seller’s costs, but the Attorney General’s statement stated that “Quality King’s own median costs to purchase Lysol Spray from its suppliers remained flat.”[20]

Cases Against Digital Platforms

Economists identify entities that are not traditional firms, but instead match sellers and consumers to facilitate a sale, as “intermediaries” in two-sided platform markets.[21] Platforms provide a method for searching, matching, and exchanging information on goods and services. In doing so, they aim to reduce transaction costs to make the desired economic exchange possible.[22]

Users of the platform typically make conscious decisions on platform-specific investments in order to interact with another side of the market.[23] Such investments include, for example, downloading an app and registering with a platform, learning how to use a specific platform to interact with the other side, and opportunity costs such as driving to a shopping mall. The terms of each side using the platform can include pricing, marketing, bundling, delivery of the goods and/or services, and the ability to determine the quality and nature of services offered.[24] Examples of these platforms include eBay, Etsy, and at least a portion of the sales made on Amazon.

A class action suit in California alleges that Amazon’s prices “for the goods consumers require to remain healthy, protected, and nourished” during the COVID-19 pandemic have increased by much more than California’s permitted 10 percent threshold during a state or local emergency.[25] The complaint cites price increases of 500 percent for face masks, 233 percent for pain relievers, 674 percent for cold remedies, and 100 percent for disinfectants, among several others.[26] Plaintiffs seek “damages, restitution, injunctive relief, and all other available remedies.”[27] According to the complaint, the United States Public Interest Research Group Education Fund “published a study showing that prices for half of certain public health products sold on Amazon … had increased by more than 50 percent above their 90-day average,” and that the higher prices “were not limited to products supplied by third parties.”[28]

Another California class action suit alleges price gouging by eBay, citing several comparisons of goods sold by eBay at prices as much as 300 percent above various other sellers’ retail price.[29] The complaint notes that “eBay’s very business model not only allows but encourages such price gouging, to eBay’s financial benefit: in addition to charging fees for initially listing items, eBay charges a ‘final value fee’ when items actually sell, which is calculated as a percentage of the total amount of the sale.”[30] The plaintiffs claim that eBay issued a “purported ‘ban’ on price gouging,” but that the ban was “deliberately pretextual, undertaken with ‘a wink and a nod’ to the continued daily sale of tens of thousands of essential products at price-gouging prices.”[31]

In Texas, the state Attorney General has sued Auctions Unlimited LLC “for selling necessities at an excessive or exorbitant price during a disaster declared by the governor.”[32] The complaint alleges that “Defendant is taking advantage of a disaster by offering for sale, and/or selling, necessities such as face masks, hand sanitizer, and cleaning supplies at exorbitant or excessive prices.”[33] The complaint similarly alleges that the prices “greatly exceed the normal and reasonable price.”[34]

In the cases against Amazon and eBay it remains to be seen whether they and similar firms are appropriately classified as “platforms” that match buyers and sellers, as opposed to sellers with a duty to police the products they produce and sell.[35] For example, the courts appear split on whether Amazon is strictly liable as a “seller” of third party supplied products.[36] Both Amazon and eBay have rules that limit what a third-party seller may do; however, both firms have been accused of doing too little too late in preventing third parties from violating price gouging laws.[37] The right mix of controls and user freedom/responsibility to ensure those who use these platforms benefit is an area of ongoing research and should be taken into consideration in analyzing these cases. Amazon has reacted by asking Congress to provide a national standard for the determination of price gouging, which presumably would help clarify the responsibilities of platforms without reducing the benefits platforms provide.[38]

3M Cases

3M has filed several lawsuits against firms involved in the sale of masks manufactured by 3M, which are critical products in fighting the COVID-19 pandemic.[39] The lawsuits cite significant markups on the sale of 3M’s products, and allege that the defendants offered to sell 3M-brand masks even though the sellers are not authorized distributors of 3M, or that the plaintiffs falsely claimed a business affiliation with 3M.

Other Cases

In addition to these high-profile cases, state and local officials have been issuing warnings to retailers. The Texas AG has received over 3,000 complaints of price gouging, but the only cases filed so far by the Texas AG are the previously mentioned cases against Auctions Unlimited LLC[40] and Cal-Maine Foods. For small firms, the standard action appears to be a warning to stop the purported price gouging.[41] There have been 379 price gouging complaints reported to the San Diego District Attorney, of which 79 are currently being investigated, none of which have yet led to any charges. A spokesman for the San Diego District Attorney stated, “In instances that appear to be gouging, we send an investigator to contact the manager or store owner. Once contacted, most businesses comply.”[42] The experience of sellers in the District of Columbia has been similar, with one case against a local market alleging that the store charged $12.99 for a bottle of Clorox that sold for $4.29 before the declared emergency. The case was filed when upon a return visit the store had not reduced the price of Clorox.[43]

Conclusion

The COVID-19 pandemic has had longer, more widespread, and more severe effects on firms than other declared emergencies. While price-gouging laws have been used in the past, they have not resulted in the number or significance of cases being filed now, and more cases may be filed in the near future. For the cases brought against major retailers and digital platforms, there are a number of unresolved legal and economic issues that will benefit from clearer economic modeling and identifying reliable sources of data.


Ankura is not a law firm and does not provide legal advice. This article is for informational purposes only and does not, and is not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided herein. Please consult with your own legal counsel regarding any specific legal questions you may have.

©2020 by the American Bar Association.  Reprinted with permission.  All rights reserved.  This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.


[1] Executive Order 13910 of March 23, 2020, “Preventing Hoarding of Health and Medical Resources To Respond to the Spread of COVID-19,” https://www.federalregister.gov/documents/2020/03/26/2020-06478/preventing-hoarding-of-healthand-medical-resources-to-respond-to-the-spread-of-covid-19.
[2] Office of the Attorney General, “Department of Justice COVID-19 Hoarding and Price Gouging Task Force,” March 24, 2020, https://www.justice.gov/file/1262776/download.
[3] Department of Justice, “Department of Justice and Department of Health and Human Services Partner to Distribute More Than Half a Million Medical Supplies Confiscated from Price Gougers,” April 2, https://www.justice.gov/opa/pr/department-justice-and-department-health-and-human-services-partner-distribute-more-half.
[4] Bloomberg Law, “ANALYSIS: DOJ Uses Price-Gouging Law to Bring Felony Charge,” May 1, 2020,
https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-doj-uses-price-gouging-law-to-bring-felony-charge.
[5] Drugwatch, “DOJ, 3M Crack Down on COVID-19 Price Gouging,” May 12, 2020, https://www.drugwatch.com/news/2020/05/12/crack-down-on-covid-19-price-gouging/.
[6] Law.com, “DOJ Launches COVID-19-Related Fraud and Price Gouging Cases,” May 14, 2020,
https://www.law.com/newyorklawjournal/2020/05/14/doj-launches-covid-19-related-fraud-and-price-gougingcases/?slreturn=20200414171326#.
[7] FindLaw.com, “Price Gouging Laws by State”, https://consumer.findlaw.com/consumer-transactions/price-gouging-laws-by-state.html. Additionally, the Governor of Minnesota issued an executive order “to address price gouging amid the COVID-19 pandemic” (see Minnesota Emergency Executive Order 20-10, https://www.leg.state.mn.us/archive/execorders/20-10.pdf).
[8] TheHill.com, “All 50 states under disaster declaration for first time in US history,” April 12, 2020.
[9] FindLaw.com, “Price Gouging Laws by State,” https://consumer.findlaw.com/consumer-transactions/price-gouginglaws-by-state.html.
[10] Chris Wheeler and David Hofmayer, “Sellers, Anticipate Novel Calif. Price-Gouging Class Actions,” May 4, 2020, https://www.law360.com/articles/1269846/print?section=california.
[11] New Jersey Revised Statutes § 56:8-108 – Definitions Relative To Excessive Price Increases At Certain Times,
https://law.onecle.com/new-jersey/title-56/56-8-108.html.
[12] “US Outlook: Top Questions For Businesses Concerned About COVID-19 and Price Gouging,” Quin Emanuel Trial Lawyers, March 30, 2020.
[13] “In California, Attorney General Xavier Becerra has issued two admonitions against price-gouging — one focused on online retail platforms, and the other emphasizing that liability attaches to all sellers in the supply chain, including manufacturers, wholesalers and distributors.” Chris Wheeler and David Hofmayer, “Sellers, Anticipate Novel Calif. Price-Gouging Class Actions,” May 4, 2020, https://www.law360.com/articles/1269846/print?section=california.
[14] State of Texas v Cal-Maine Foods, Inc. d/b/a Wharton; and Wharton County Foods, LLC, Plaintiff’s Petition and Application for Temporary and Permanent Injunctions, ¶4
[15] Id., ¶5
[16] Id., ¶5
[17] Id., ¶27
[18] Bell et al. v Cal-Maine Foods et al., Para 1, and Fraser et al. v Cal-Maine Foods et al., Class Action Complaint, ¶1.
[19] Id., ¶53
[20] “Attorney General James Sues Wholesaler for Price Gouging During the Coronavirus Pandemic,” Press Release, New York State Office of the Attorney General, May 27, 2020.
[21] Hagiu, Andrei and Julian Wright, “Multi-sided platforms” International Journal of Industrial Organization 43, no. 1 (2015): 162-174 (hereafter, Hagiu and Wright (2015)), pp. 162-163; Evans, David S. and Richard Schmalensee, “Markets with Two-Sided Platforms,” Issues in Competition Law and Policy 667, ABA Section of Antitrust Law 2008, 667-693, p. 667. Rochet, Jean-Charles, and Jean Tiróle, “Two-Sided Markets: A Progress Report,” The RAND Journal of Economics 37, no. 3 (2006), 645-667 (2006), (hereafter, Rochet and Tirole (2006)), pp. 645-646.
[22] See, e.g., Evans, David, “The Economics of Multi-Sided Platforms,” at FTC Hearing #3 on Competition and Consumer Protection in the 21st Century, October 15, 2018, slide 11.
[23] Hagiu and Wright (2015), pp. 163-164.
[24] Hagiu and Wright (2015), p. 163.
[25] McQueen and Ballinger, et al. v. Amazon.com, Class Action Complaint for Violation of California’s Unfair Competition Law, Unjust Enrichment, and Negligence.
[26] McQueen and Ballinger, et al. v. Amazon.com, Class Action Complaint for Violation of California’s Unfair Competition Law, Unjust Enrichment, and Negligence, ¶ 5.
[27] Id., ¶ 7.
[28] Id., ¶ 51.
[29] Mercado v eBay, Class Action Complaint for Violation of California’s Unfair Competition Law, California’s Consumer Legal Remedies Act, and Quasi-Contract, Restitution, Unjust Enrichment, ¶ 17.
[30] Id., ¶ 2.
[31] Id., ¶ 27-28.
[32] State of Texas v. Auctions Unlimited LLC, Plaintiff’s Original Petition and Application for Temporary and Permanent Injunctions, p. 1.
[33] Id., ¶ 13.
[34] Id., ¶ 16.
[35] See ABC 7 News, “CONSUMER CATCH-UP: Amazon class action price gouging lawsuit, CA attorney general urges FCC, telecom companies more consumer protection, Americans want another stimulus check,” April 22, 2020,
https://abc7news.com/consumer-news-amazon-sued-price-gouging-class-action-attorney-general-relief-for-telecomcustomers/6122792/; Digital News Daily, “eBay Hit With Price-Gouging Lawsuit,” May 5, 2020, https://www.mediapost.com/publications/article/351034/ebay-hit-with-price-gouging-lawsuit.html; Chris Wheeler and David Hofmayer, “Sellers, Anticipate Novel Calif. Price-Gouging Class Actions,” May 4, 2020, https://www.law360.com/articles/1269846/print?section=california.
[36] Peter J. Murphy, “Court Finds Amazon Strictly Liable as ‘Seller’,” April 20, 2020, available at https://www.americanbar.org/groups/litigation/publications/litigation-news/top-stories/2020/court-finds-amazon-strictlyliable-as-seller/.
[37] Amazon also is accused of price gouging on products it sells. McQueen and Ballinger, et al. v. Amazon.com, Class Action Complaint for Violation of California’s Unfair Competition Law, Unjust Enrichment.
[38] Amazon, “It’s time for Congress to establish a federal price gouging law,” May 13, 2020, https://blog.aboutamazon.com/policy/its-time-for-congress-to-establish-a-federal-price-gouging-law.
[39] See 3M Co. v. Tac2 Global LLC; 3M Company v. 1 Ignite Capital LLC; 3M Company v. Hulomil LLC; 3M Company V. Geftico, LLC; 3M Company V. Performance Supply, LLC; 3M Company V. Rx2live, LLC.
[40] State of Texas v. Auctions Unlimited LLC, Plaintiff’s Original Petition and Application for Temporary and Permanent Injunctions.
[41] KVUE, “Price gouging reports spike in Texas amid coronavirus outbreak,” March 27, 2020, https://www.kvue.com/article/news/investigations/defenders/price-gouging-reports-spike-in-texas-amid-coronavirusoutbreak/269-33617a5a-9616-416e-91f0-c2be965d2d32; ABC News, “Texas accuses US’ largest egg producer of price gouging,” April 24, 2020, https://abcnews.go.com/US/wireStory/texas-accuses-us-largest-egg-producer-price-gouging-70334159.
[42] NBC 7 San Diego, “Hundreds of Price Gouging Complaints Filed During Coronavirus Pandemic,” May 14, 2020,
https://www.nbcsandiego.com/news/investigations/nbc-7-responds/hundreds-of-price-gouging-complaints-filed-duringcoronavirus-pandemic/2325305/.
[43] WTOP, “Spike in billing, price gouging complaints in DC attorney general’s report,” March 16, 2020, https://wtop.com/dc/2020/05/spike-in-billing-price-gouging-complaints-about-in-dc-attorney-generals-report/. See District of Columbia v. Helen Mart, LLC, Complaint, May 1, 2020.