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.
Lead investigator: |
Luis Cabral |
Affiliation: |
New York University |
Primary topic: |
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Status of data collection |
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Type of data being collected: |
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Unit of real-time data collection |
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Start date |
1/2020 |
End date |
2/2020 |
