Sellers Find Legal Price Gouging Opportunities Post-Sandy Through Craigslist

Price gouging post-Sandy has its way on Craigslist.

November 7, 2012, 7:35 AM

Nov. 7, 2012 — -- The demand for power and emergency-related equipment after superstorm Sandy is causing spiking prices on Craigslist and other markets, despite government warnings and laws prohibiting price gouging. But are such measures a help or do they actually hurt consumers?

Mark Perry, professor of economics at the University of Michigan, points out that New Jersey Gov. Chris Christie's warnings against price gouging have exacerbated the post-disaster marketplace that is already under stress from high demand and low supply.

Perry, a scholar with the conservative American Enterprise Institute, said there are over 600 listings for generators in North New Jersey on Craigslist, some listed for thousands of dollars when they are often sold for $700 or less.

"Anti-price gouging laws are really guaranteed shortage laws," Perry said. "You're preventing the market from working and using the magic of allocating resources, creating shortages. The market is innovative and resilient. The market has gone from stores into Craigslist and now we have this informal marketplace."

One new Black Max 5,000 watt generator purchased at Home Depot, according to a Craigslist ad, is selling for $1,100, which traditionally sells for about $700 at hardware stores.

Perry said it is likely some people are buying products at hardware stores at normal prices due to regulations prohibiting businesses from selling products with a mark-up higher than 10 percent over pre-disaster prices. They then are re-selling those online or in other markets where demand is high.

Perry said preventing price gouging actually keeps prices artificially low, whereas allowing the market to operate naturally would cause prices to increase for a couple days, then decrease.

But the New Jersey Division of Consumer Affairs doesn't agree. On Friday it announced that it issued 65 subpoenas to businesses in the state, as it investigated over 500 consumer complaints about alleged price gouging.

"Having visited some of the hardest-hit areas of our state, and having seen firsthand the suffering people are experiencing, I assure New Jersey's residents and retailers that we are taking a zero-tolerance approach to price gouging," said Christie in a statement on Friday. "Fuel, electricity, food, and a place to sleep are not luxuries, certainly not for individuals who have been displaced from their homes and in many cases have limited resources at their disposal. We are not asking businesses to function as charities. We require that they obey New Jersey's laws – or pay significant penalties."

But Perry argues that allowing the marketplace to set prices is the most efficient way to allocate scarce supplies.

"If we want generators, blankets and other supplies to get into New Jersey as quickly as possible, allow prices to rise temporarily so it attracts resources that are needed the most," Perry said.

"Those high prices are an emergency flare to the rest of the country to attract those products to those areas," he said.

The post-disaster marketplace creates an unexpected urgency for many products. Even supplies like road flares used by the New York Police Department were in short supply, prompting a call for help from other agencies.

"We needed road flares for post-storm coverage complicated by the long gas lines that had formed on streets round gas station," said the NYPD's chief spokesperson, Deputy Commissioner for Public Information Paul Browne. "We were inundated with contributions through Intelligence Division's Sentry Program."

Utility companies are still struggling to restore heat and electricity to 930,783 customers without power in six states, the Energy Department reported Tuesday afternoon, a decrease of nearly 43,000 customers since that morning.

The need for power is especially acute as a Nor'easter is expected to bring gusty winds and rain this week to the already hard-hit region.

Gov. Christie said of the utility companies that "Hurricane Chris may come at the end of the week if they don't do their job."

Meanwhile drivers are still waiting in line for gas across the Northeast, with fuel in short supply in the areas hit hardest by Sandy.

Christie praised Hess this week for restoring nearly all its gas stations and distributing gas to competitors so drivers could have greater access.

ABC News' Richard Esposito contributed to this report.

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