U.NSCRUPULOUS TRADERS Use a crisis to calculate exorbitant prices. Politicians who want to protect consumers take action against profiteers. But how can you find out what price is too high and what remedy is appropriate? The story of your correspondent’s local corner shop offers a cautionary tale.
This type of business was once known in New York, but has largely been supplanted by chains and bank branches. The owner is an immigrant who opens early and closes late. In times of crisis, the shop stores the products that customers need. When the 2012 Hurricane Sandy floods resulted in a power outage, batteries, flashlights, candles and board games were sold. During the pandemic, it was piled up with boxes of disinfectant, bleach, masks and gloves.
Stocking up is associated with risks. Acquiring inventory is costly. Demand falls when normality returns – unwanted board games remain in the back of the shop. And this time the rules have changed. In March, a woman bought a box of masks (each mask was $ 2) and then said she was from the city’s consumer affairs bureau and accused the shopkeeper of breaking new discount rules. Two days later, says the shopkeeper, another inspector charged the shop again, this time giving advice on the right prices. Masks shouldn’t cost more than $ 1. Gloves that sell for $ 19.95 should sell for just $ 14.95. Any package that is marked above the allowed price will be fined $ 500. There were many packages.
Most economists do not disapprove of price restrictions because they like fat profits, but because higher prices lead to more supply. In fact, disinfectants and face masks are ubiquitous and cheap in many places. Then there is the tricky question of what counts as a price cut – in the event of a pandemic. New York banned price increases of more than 10% over pre-pandemic levels. But what if the store hadn’t sold the items beforehand? And why 10%? Price increases “beyond an amount reflecting normal market fluctuations” were prohibited. But what was normal in March?
In response to a subpoena, the shopkeeper went to court twice and endured the security check and the queues only to find it was out of session because of covid-19. The first time, a security guard stated that the summons was mistakenly sent by computer. Another defendant in another case said she tried calling several times to ask if the court was up, but couldn’t get through. (She would have been found guilty had she not shown up.)
Just before a postponed hearing, the shopkeeper received an offer to pay the initial fee for just over $ 7,000. That’s a lot more than his monthly profit, he says behind the plastic screen, which now distances him from customers and looks at a pile of legal papers on his counter with a gloomy look. But the fines would be ruinous.
The New York City Consumer Protection Agency has issued more than 14,600 citations according to its own information. The shopkeeper will settle down but is concerned that he may have to pay the second fee again. Justice in the Big Apple has been opaque and costly – and begs the question of who exactly is being eroded.
This article appeared in the Finance & Economics section of the print edition under the heading “Disaster Profiteering”.