What is Profiteering?
Profiteering is an unfair trade practice whereby businesses use unethical means to make excessive or unreasonable profits. It is also when businesses take undue advantage during the time of emergency so as to make more and more profit. They do so by charging high prices for essential goods. It is a form of black marketing.
So, we could say that the profit that the companies make is apparently of huge proportions by manipulating prices. One should note that profiteering is not considered illegal except when it involves crime.
In short, profiteering means raising the prices of goods which are hard to get, such as medicines or injections during an epidemic like Covid, so as to make large profits. It may include cheating government, overcharging consumers for basic facilities or tenants for housing.
An example of profiteering is payday loans, which are associated with a very high-interest rate that makes it very difficult to pay back. Money sharks offer these to make huge profits out of the inflated rate of interest.
In general, business houses are accused of profiteering as they increase prices in the event of an emergency. However, the term is also applicable to businesses that bribe ministers and leaders to obtain government contracts.
Price fixing syndicates are illegal profiteering as they promote anti-competitive behaviour.
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Concept of Profiteering
In simple words, Profiteering is all about earning huge profits through trading activities by following shortcuts. It results in the rise in the unregulated hike in prices. It takes place when producers raise the profit margins.
In this process, the traders buy goods from the producers at reasonable prices, and then they create a fake shortage of necessary items and raise the price of the commodities. In this way, profiteering brings loss to both producers and customers.
Essential Commodities Act, 1955
In this regard, an act has been introduced to curb the profiteering practices, namely, The Essential Commodities Act 1955. The aim of the act is to control the production, supply and distribution of essential commodities, keep a check on the hike in their prices and facilitate an even distribution of essential commodities.
Who is a Profiteer?
A profiteer is a person or an enterprise who makes or attempts to make unreasonable profits by selling commodities in a black market. So, it is the profiteer who takes advantage of the situation in order to make an unfair profit, wherein the general public suffers.
Example: During Covid times, several landlords turn out as profiteers by doubling the rent because of the shortage of housing.
Types of Profiteering
There are mainly two types of profiteering. These are:
Price Fixing
It involves controlling the supply and demand of the commodity. In this, companies decide to fix prices so as to maintain their dominion over the market. In short, various firms operating in the industry agree to set their prices for a commodity at the same high level. They do so to control the demand as well as the supply.
Hence, the consumers have no choice but to buy the goods at a fixed price. As a result of this, every firm that sells the product makes a good profit. So, in this scenario, the profiteers are on one side, and the consumers are on the other side.
Price Gouging
Price Gouging is the practice of raising prices of goods and services to such an extent it is more than the reasonable or fair price. It is exploitative in nature, which takes undue advantage of supply and demand to the greatest possible level.
Example: Hike in prices during hurricanes or floods.
What is War Profiteering?
War Profiteering is the practice of making a profit from war. This is done by charging unfair prices for the goods required during the war. This may include necessary goods such as arms, ammunition, medicines, and clothing.
Wrap Up
Profiteering also occurs when business enterprises promote corruption in politics in order to acquire government contracts. It is the pursuit of profit at the expense of the public. There are many ways to do this, such as cheating the government, overcharging consumers for goods and services and taking benefit of unfavourable and uncontrollable conditions to make money opportunistically.