Last week, as severe weather hit the country, price gouging laws were triggered ranging as far as California to Kentucky. And as we’ve previously reported, complying with the varied state price gouging laws can be tricky, especially where they use undefined terms like excessive” or exorbitant” to define price gouging. Last week the New York Attorney General announced proposed rules designed to strengthen enforcement of New York’s price gouging law, which was last updated in 2020 to grant the Office of the Attorney General (or OAG”) rulemaking authority. The rules would provide some needed clarity to the existing law, but would also impose new restrictions.

The OAG noted three important considerations that they factored in when crafting the rules:

  1. The statute is designed to prohibit companies from increasing their profits during an abnormal market disruption. Businesses are allowed to maintain their prior profit margins – even where that means increasing prices to account for higher costs.
  2. The rules are in part designed to help detect and enforce upstream price gouging – something New York has focused on in the past. The OAG asserts that upstream enforcement ultimately helps small businesses and other retailers that are often blamed for price gouging as the point of contact with consumers.
  3. The rules in part focus on corporate concentration and were guided by certain comments filed that explained how such concentration can exacerbate market disruptions as firms in concentrated markets, who have great pricing power and are often accustomed to engaging in parallel pricing, may be more willing to exploit the pricing opportunity that a disruption offers. The comments furthered explained that it may be easier to coordinate price hikes during an inflationary period in concentrated markets.

Here are some of the key proposals:

  • The rule would clarify that a price increase over 10% during an abnormal market disruption creates a presumption of price gouging. New York’s law currently states that when there is a gross disparity” in prices before and after an abnormal market disruption, it may be price gouging. Companies often struggle to figure out what that means, so this would provide a clearer standard. The OAG notes however that this is merely a presumption, and that increases of less than 10% can still constitute price gouging depending on the facts and market circumstances.
  • The rule would clarify that dominant companies with 30% market share, and companies in concentrated markets, have a presumption of unfair leverage and as such, any increase in price during an abnormal market disruption creates a presumption of price gouging. If it is in a market for vital and necessary goods and services with five or fewer significant competitors, then the presumption of unfair leverage applies to a firm with above a 10% market share.
  • The rule would address dynamic pricing, whereby prices can change depending on demand and time of day. (This practice is common in certain industries, such as the ride sharing industry, and is increasingly used by retailers to set prices based on real-time demand.) The rule would allow the OAG to establish a benchmark by using the median price for the same good or service at the same time one week before the emergency or market disruption.
  • The rule would address products or services introduced after a market disruption. A new product or service that is created following an emergency can be considered vital and necessary, and therefore can become subject to enforcement of the price gouging statute. This rule is a direct response to some of the activity the OAG observed during the COVID-19 pandemic, notably price gouging related to at-home testing kits.
  • The rule would provide clarification for what companies can claim as additional costs not within their control when setting prices during a market disruption. This rule details what does and does not count as a cost for purposes of an affirmative defense. Notably, the rule clarifies that things like a decline in sales and projected future costs will not be included as valid additional costs justifying a price increase.

Companies who are interested in impacting how the rules develop have 60 days to submit comments.

For more information on state price gouging laws, click here.