What is "profiteering" and is it illegal?

Question

Anther question discusses discrimination and "profiteering". What is profiteering in a legal context as distinct from normal for profit business in a capitalist market society?

Answer 1

UK

In england-and-wales, Profiteering or "Price Gouging" don't appear at all in laws. However, there is the Competition Act of 1998, which bans abusive practices. Of particular interest is this provision :

18 Abuse of dominant position.

(1)Subject to section 19, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.

(2)Conduct may, in particular, constitute such an abuse if it consists in—

(a)directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

The unfair pricing part would most certainly be triggered by demanding the weight of a roll of toilet paper in sterling silver (227 grams with ~£0.55 per gram, so ~£125), but the law also requires market domination, which is defined as controlling the price of about 40% of the goods in an area. So unless you are dominate the toilet paper market in all of the county or hundreds of miles, you can almost demand whatever you want.

US

Profiteering can be one of two things in legal circles of the united-states:

• Price Gauging
• War Profiteering

War Profiteering

War Profiteering was part of the title of HR-400 War Profiteering Prevention Act of 2007, defining the act as:

Whoever, in any matter involving a contract with, or the provision of goods or services to, the United States or a provisional authority, in connection with a mission of the United States Government overseas, knowingly—

(1) (A) executes or attempts to execute a scheme or artifice to defraud the United States or that authority; or

(B) materially overvalues any good or service with the intent to defraud the United States or that authority;

Examples from history would be deliberately creating sub-par products that break as soon as they hit combat. In any way, it is just against the US as the state, not any person.

Price Gouging

In many state laws, Price Gouging is fixed in some way or another. Price Gouging is the term of art used for the act to "take advantage of spikes in demand by charging exorbitant prices for necessities". The term does not apply to normal increases of prices due to shifting economies or dissimilar prices for products. Commonly, many are also restricted to emergency situations such as natural disasters, war, or even covid-19.

Generally, these laws punish people who increase prices in an unreasonable manner but they also don't prescribe what reasonable is.

An example of Price Gouging is the salesman, who knowing a hurricane will hit Florida, buys up all generators in Detroit that cost below 2000 USD and gets a truck there to sell them the moment it has passed. Now he sells each generator for 20000 USD, while the normal market price outside of the hit area is just a 10th of that. In addition, have him sell 5-gallon cans of fuel for 500 USD. Both items - equipment to make electricity to fix the homes and fuel - are under Fla. Stat. §501.160 1(a) and the prices are clearly matching 1(b). So our Detroid salesman in Florida is violating the law on Price Gouging.

Non-emergency laws?

Only very few laws are not concerned with an emergency situation and thus more broad and general. The most likely broadest of them is Mich. Comp. Laws §445.903 (z). It reads:

Charging the consumer a price that is grossly in excess of the price at which similar property or services are sold.

Here, grossly in excess is the requirement, but also the similarity of the products. So, it does not take dissimilar products into account, especially not if the two items cost you very dissimilar to acquire them.

To take a less emergency example, let's say we have a shop. We sell two types of toilet paper: one is 1-ply and costs 10 cents a roll. The other is imported german, extra soft 4-ply with Aloe-Vera and vanilla smell and we demand 5 USD per roll. The price difference is harsh (50 times!) but the two products are not similar, and we can prove that the import paper did cost us something like 4 USD to get to our shop in the first place. Now, one day we just put the 5 USD label from our import paper onto the cheap one for whatever reason. Only now we grossly overprice our cheap toilet paper and violate that provision: we charge 50 times what the item's fair price is.

When goods don't appear dissimilar but are

A baker might make a pie for 50 USD in basic fixed costs (tools, wages, electricity) to run the shop, and 25 cents per pie in ingredients if he bakes 100 of them. That's 75 USD for 100 pies in costs, or 75 cents a pie. He wants to sell them at 1 USD a piece, that's a 1/3rd markup and a somewhat normal price.

The same baker can also bake gluten-free pies. The ingredients cost him 50 cents a pie and the same basic fixed costs to make a batch. But he also has to clean the shop top to bottom for 3 hours before to get any gluten flour out of it, costing him another 100 USD in wages. He also only has a demand for 10 pies, so those pies cost him 160 USD per batch or 16 USD per pie. To make a profit, he sells them at 21,33 USD, which is again a 1/3rd markup. At first glance, a gluten-free pie might appear a very similar product, but it isn't even similar under the Michigan law, because manufacturing costs are disproportional higher for the market. Even if he could sell 100 pies and then made a 100 pie batch, he'd still pay 200 USD for 100 pies, and the fair price for a single pie from a 100-item batch would be 2,66 USD. But from the 10-item batch, it's 21,33 USD.

Because the two pies are so dissimilar in manufacturing prices, they can not be used as "similar" under Michigan law. You'd need to compare the price of another gluten-free pie that is baked in similarly small batches in a bakeshop that makes both normal and gluten-free products in the same workshop.