Food retailer response to price gouging litigation

Abstract

AbstractPrice gouging laws are designed to protect consumers from skyrocketing prices, but are they beneficial in practice? In this research, we analyze food retailers' response to widespread price gouging litigation for table eggs at the onset of the COVID‐19 pandemic. Our results suggest that price gouging litigation led to a dramatic change in US food retailer behavior, which persisted long after the resolution of many of these legal disputes. Major grocery retail chains responded to price gouging litigation by announcing price freezes on thousands of staple products. By rigidly adhering to pre‐pandemic price levels for eggs, we find that retailer response led to a breakdown in the historic dynamic equilibrium relationship between egg prices and the costs of major inputs. At a time when the cost of egg production increased sharply, we find that retailers chose to reduce their purchases and price promotions for eggs rather than raise prices. This suggests that—in response to price gouging litigation—food retailers are willing to accept empty shelves in lieu of increasing prices.