Seller Reputation and Price Gouging: Evidence from the COVID-19 Pandemic

Seller Reputation and Price Gouging: Evidence from the COVID-19 Pandemic. Luis Cabral, Lei Xu. May 2020. http://leixu.org/xu_price_gouging.pdf

Abstract: We test the theory that seller reputation moderates the effect of demand shocks on a seller’s propensity to price gouge. From mid January to mid March 2020, 3M masks were priced 2.72 times higher than Amazon sold them in 2019. However, the difference(in price ratios) between a post-COVID-19 entrant and an established seller is estimated to be about 1.6 at times of maximum scarcity, that is, post-COVID-19 entrants price at approximately twice the level of established sellers. Similar results are obtained for Purell hand sanitizer. We also consider cumulative reviews as a measure of what a seller has to lose from damaging its reputation and, again, obtain similar results. Finally, we explore policy implications of our results.

Keywords: price gouging, COVID-19, Amazon
JEL codes: D01