What is an Overcharge?

An overcharge is a financial term that is used to describe a situation in which there is some variance between the current market price and what that price would have been if certain events or circumstances had not transpired. The term can also be used to describe a situation where a business chooses to mark up the price for goods and services for no reason other than to increase the profit made by the company. When an overcharge occurs in situations where there are few if any consumer alternatives in the local marketplace, the practice is sometimes referred to as price gouging or profiteering.

One example of an overcharge situation involves the occurrence of a natural disaster. If a flood devastates a community, the displaced residents will seek living accommodations in surrounding communities that were untouched by the disaster. If hotels and realtors choose to increase the rental rates for their accommodations as a result of the increased demand caused by the flood, this would amount to the implementation of an overcharge. This creates a situation in which the displaced residents must pay what may be exorbitant sums in order to have some place to stay while the flood recedes and the condition of their property is assessed.

Many businesses take steps to avoid overcharging for goods and services. This often involves paying close attention to the cost of production and setting prices that are a certain percentage over those costs. Businesses will also look closely at what competitors are charging and keep their retail price structures within a certain range of those competitor prices. When coupled with governmental regulations that are designed to discourage price-fixing overcharges and gouging during an emergency situation, this strategy allows the business to make a reasonable level of profit while also protecting consumers from paying unreasonable prices for the goods and services they desire.

In many jurisdictions, legal action can be taken against any business that is observed to overcharge for the products it offers. In the United States, this action usually takes place at the county level, where the district attorney for the county will investigate the complaint, determine if it has merit, and pursue a case against the business if there is sufficient evidence to warrant the action. In some jurisdictions, an investigation into the claim may result in the imposition of a fine if there is evidence of overcharging. The offending business may also be subject to civil action by former customers, depending on the outcome of the investigation.