Price-Gouging: The Only State Regulation on Hotel Rates?

Last Updated Oct 6, 2008 2:14 PM EDT

Raising rates for hotel rooms isn't just arbitrary, it's the American Way -- capitalism as it's meant to be. When there's an increase in demand, prices rise naturally because supply is generally stable, right? But while raising rates significantly during conventions or the Big Game is common, doing so in disaster areas can be criminal, as some Texas hotels recently learned.

Texas Attorney General Greg Abbott filed a civil lawsuit against two hotels accused of price gouging during Hurricane Ike last month, when 1.2 million people evacuated their homes and fled to surrounding hotels and motels.

The Hotel Nacogdoches, near Houston, charged $99.99 for rooms usually sold for $49.99. The Super 8 Brookshire Motel, near Katy, charged up to $125 for a room that normally went for $99.

The attorney general is seeking up to $20,000 per violation -- $250,000 for customers 65 and older. The Texas Deceptive Trade Practices Act prohibits businesses from taking advantage of a declared disaster by selling or leasing fuel, food, lodging, medicine or other necessities at an exorbitant price. A copy of the lawsuit can be found here.

"They took advantage of the fear and the needs of people who were evacuating the Gulf Coast region, and they jacked up prices," Abbott told the Houston Chronicle.
Other states such as Virginia and Florida are also investigating allegations of price-gouging during last month's hurricanes.

My thoughts were, "Well, Texas, where were you when these hotels were hiking prices each weekend? Or when the Houston Texans are playing?"

The fact is, they're not because the state isn't really concerned about prices. There are few, if any, regulations that limit hotels' ability to set their own rates... unless there's a hurricane, tornado or other Act of God. So, can a lone hotelier in the middle of a small town who is not part of a national chain be expected to be philanthropic when the very model of its existence isn't?

As kooky John Lott wrotes for, "Stamping out 'price-gouging' by hotels merely means that more of those fleeing the storm will be homeless.... Instead of a family getting one room for the kids and another for the parents, some will make do with having everyone in the same room. At high enough prices, friends or neighbors who can stay with each other will do so."

I'm not sure I go as far as Lott's free-market absolutism, but for the government to rely on the same people that sell $5 bottles of water on a regular basis to suddenly wake up to the joy of giving is certainly a stretch. If the government is going to require reasonably-priced hotels during a natural disaster, why not give them a financial incentive rather than expecting them to take it on the chin for the good of the community?

As always, comments are appreciated.