What Economics Can Tell Us About COVID-19 Era Price-Fixing

With market upheavals such as the one caused by the COVID-19 pandemic, supply and demand for certain goods and services shift wildly, putting companies at risk for accusations of price gouging and price fixing.

When demand skyrockets, as we’ve seen recently with staples such as cleaning wipes, toilet paper and beef, sellers may be tempted to charge above market price (price gouging) or collaborate with other sellers to increase prices for hard-to-find goods (price fixing).

In this article published on Law360.com, the authors examine the challenges in evaluating the economic evidence of price fixing and assessing the purported overcharges from alleged anti-competitive behavior.

Economists use several methods to properly assess purported overcharges, including the reduced-form estimation of price that has been used in recent litigation. The equation uses a dataset of market prices for various suppliers during both a benchmark period (i.e., when there was no conspiracy) and the conduct period (i.e., the period when the alleged conspiracy occurred).

There are many potential issues related to current extraordinary market conditions that should be considered when estimating a reduced-form price equation. Some of these issues are:

Significant geographic variation in both demand and supply factors;
Change in the relationship between demand and supply factors and the market price;
Temporary or permanent absence of some suppliers; and
Technical estimation challenges due to reduced data availability

This is an extract from Lessons From What Economics Can Tell Us About COVID-19 Era Price-Fixing, first published on June 10th 2020. The entire publication is available at: https://www.law360.com/articles/1280176

"Social distancing and shelter-in-place orders following the declaration of COVID-19 as a pandemic have caused cataclysmic shifts in demand and supply for most goods and services. Such extreme market shifts expose companies to the risk of violating price-gouging and price-fixing laws."