Government threats to VT businesses during coronavirus will mean product shortages

March 16, 2020

By David Flemming

Vermont’s Attorney General TJ Donovan has sent out a warning to Vermont businesses and consumers about so-called “price gouging” during the coronavirus outbreak. While “price gouging” may sound cruel, this condemnation on raising prices could leave Vermonters in an even more difficult spot: without product essentials altogether.

At a March 12 press conference, Donovan spoke of repercussions on Vermont businesses if “we think folks are taking advantage of Vermont consumers,” before turning the floor over to Christopher Curtis, Chief of the Public Protection Division.

Curtis implored Vermonters to “exercise some common sense and restraint in your purchasing habits. Plan ahead… yes, but don’t take advantage. It’s just not appropriate to the size and scale of the crisis, 2-3 weeks of planning ahead. Friends and neighbors also need access to those same supplies… on the side of business community, we’re asking for restraint in asking that prices aren’t driven up so high without any nexus or connection to actual cost that could constitute a price gouging claim or concern. We have the Consumer Protection Act which guards against unfair practices in commerce. Any cost increase may trigger the Consumer Protection Act and we will be vigilant to make sure that Vermonters are not taken advantage of.”

So, Vermont businesses are being asked to avoid increasing prices “without a connection to actual cost” and Vermont consumers are being asked to “use restraint in our purchasing habits.” While there may be an implicit legal threat to consumers, the threat is made explicit Vermont businesses by the specific legal pronouncement.

Shortly after suggesting that “a connection to actual cost” could justify a legal price increase, Curtis declares that “any cost increase” may trigger the Attorney General to prosecute the guilty business using the Consumer Protection Act. This is a horrible signal to send during a health crisis.

A business raising the price of hand sanitizer serves two functions. First, consumers self-ration with higher prices. Rather than buying 2 quarts of hand sanitizer at $4.99 each, they are more likely to settle on 1 for $6.99, leaving the other for someone else. Second, if prices for food and health items increase, businesses further up the supply chain (inside and outside Vermont) will increase production hoping to chase those higher profits. This increase in supply would drive down prices and lead to a larger supply over time.

And if the government isn’t convinced?

A small business in Vermont may decide to leave certain items “Out of Stock” if they can’t be obtained affordably from larger suppliers. If you have an initial price of $5 for toilet paper (which you paid $4.50 for) and your supplier says the price has increased to $6, why would you ever order toilet paper, knowing full well there is a risk of government lawsuit if you sell it for $6.50?

The threat from the Attorney General is effectively a price control, ensuring that only those with time on their hands and the easiest means of transportation will get first dibs on sanitizer, toilet paper and other goods. And if these goods only go toward a small group of people, the virus will spread more quickly, potentially overwhelming our rigidly government controlled healthcare system in Vermont. Worse, if this ends up being a prolonged epidemic, the failure to pivot into the production of needed products will lie heavily on the Attorney General’s shoulders.

David Flemming is a policy analyst at the Ethan Allen Institute

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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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