What does economics say about "price gouging" during an emergency? Many states have laws against "price gouging" during an emergency.

Are these laws counterproductive?

Take the current situation with toilet paper and water. When someone sees rolls of toilet paper on the shelf, they buy them all. Not because they necessarily need it, but out of fear the next person will buy them all and there won't be any left when they do need it. This creates a positively reinforcing feedback loop of negative cause-and-effect a/k/a/ a "vicious cycle."

But if prices spiked in response to meet demand, the feedback loop cycle would slow because two good things would happen that aren't happening now.


Supply would increase. Increased prices signal suppliers (whose marginal costs remain constant) to manufacture and ship more product in order to maximize profit.
Hoarding would mitigate. Hoarders would have less incentive to hoard supplies of water, toilet paper, etc. unnecessarily if they were paying significantly higher prices than normal. Then there would be adequate supply left for those who need it and aren't simply overstocking out of an abundance of caution. Moreover, would-be hoarders would feel like the next guy also has less incentive to hoard and thus quell their fear of being left with no supply when needed.


Is this a correct economic analysis or am I missing something that justifies "anti-price-gouging" laws?
Actually economics does not even officially use term price gouging. Your analysis is right, actually economists dislike anti-price gauging legislation for this reason. 

For example, when the IGM panel of top policy economists were asked about one piece of price gouging legislation in the US, vast majority disagreed with it:



However, an important caveat to keep in mind is that due to menu costs some firm would not be able to change prices quickly enough even in absence of anti-gouging regulation - meaning such regulation is not the sole source of shortages, there would be some even without them although less severe (and of course it goes without saying this is not any justification for them).

However, beside that yes, you are actually missing the main factor that justifies the anti-price-gouging legislation. Which is moral philosophy. There is argument to be made that such practices as gouging are immoral (you can see some ethical arguments against gouging in this paper for example). While I personally dont identify with such moral views, its not our role as economists to pass moral judgements. If people pass anti-gouging legislature well aware of all the negative economic consequences but they still do it despite them then there is no objection an economist can make against them as we are scientists not moral philosophers and such questions are beyond our discipline.