Overcharge
Encyclopedia
Overcharge is an economic term that refers to the difference between an observed market price and a price that would have been observed in the absence of collusion
. The latter is often called a "but-for price" or a competitive "benchmark price". When collusion
is not in use, such as by privately-owned businesses, overcharge is considered as a markup of the observed market price for the sole profit of the business and in some states is considered illegal, similar to profiteering and price gouging
.
An overcharge may be expressed as a mark-up on the benchmark price, or it may be divided by the observed market price. When the benchmark price is equal to the marginal cost
of production, as it is in perfect competition, then ratio of the overcharge to market price is the Lerner Index of market power
.
When the overcharge is multiplied by the quantity purchased, it becomes the monetary injury
or damages
incurred by a buyer of goods sold by a cartel
.
In the legal world, in certain instances, overcharging is a practice by which the District Attorney's office within a given county charges a defendant with criminal charges that exceed what is actually written within the police report pertaining to the defendant's alleged wrongdoing. The purpose of which is to obtain a plea bargain to a lesser crime in lieu of being convicted of a far more serious crime that was not, in point of fact, ever committed.
Collusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
. The latter is often called a "but-for price" or a competitive "benchmark price". When collusion
Collusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
is not in use, such as by privately-owned businesses, overcharge is considered as a markup of the observed market price for the sole profit of the business and in some states is considered illegal, similar to profiteering and price gouging
Price gouging
Price gouging is a pejorative term referring to a situation in which a seller prices goods or commodities much higher than is considered reasonable or fair. In precise, legal usage, it is the name of a crime that applies in some of the United States during civil emergencies...
.
An overcharge may be expressed as a mark-up on the benchmark price, or it may be divided by the observed market price. When the benchmark price is equal to the marginal cost
Marginal cost
In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...
of production, as it is in perfect competition, then ratio of the overcharge to market price is the Lerner Index of market power
Market power
In economics, market power is the ability of a firm to alter the market price of a good or service. In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors...
.
When the overcharge is multiplied by the quantity purchased, it becomes the monetary injury
Injury
-By cause:*Traumatic injury, a body wound or shock produced by sudden physical injury, as from violence or accident*Other injuries from external physical causes, such as radiation injury, burn injury or frostbite*Injury from infection...
or damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
incurred by a buyer of goods sold by a cartel
Cartel
A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
.
In the legal world, in certain instances, overcharging is a practice by which the District Attorney's office within a given county charges a defendant with criminal charges that exceed what is actually written within the police report pertaining to the defendant's alleged wrongdoing. The purpose of which is to obtain a plea bargain to a lesser crime in lieu of being convicted of a far more serious crime that was not, in point of fact, ever committed.