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Seller reputation and price gouging: Evidence from the COVID ‐19 pandemic
Author(s) -
Cabral Luís,
Xu Lei
Publication year - 2021
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12993
Subject(s) - scarcity , reputation , amazon rainforest , economics , covid-19 , microeconomics , business , political science , medicine , infectious disease (medical specialty) , law , biology , ecology , disease , pathology
From mid‐January to March 2020, 3M masks sold on Amazon by third party sellers were priced 2.4 times higher than Amazon's 2019 price. However, this price increase was not uniform across sellers. We estimate that when Amazon is stocked out (one of our measures of scarcity) new (entrant) sellers increase price by 178%, whereas the continuing sellers' increase is limited to 56.7%. This is consistent with the idea that seller reputation limits the extent of profitable price gouging. Similar results are obtained for Purell hand sanitizer and for other measures of scarcity. We also explore policy implications of our results.