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 Collusion is a deceitful agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading or defrauding others of their legal right. Collusion is not always considered illegal. It can be used to att ...

. The latter is often called a "but-for price" or a competitive "benchmark price". When

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 is a pejorative term used to describe the situation when a seller increases the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair. Usually, this event occurs after a demand or ...

. 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 In economics, the marginal cost is the change in the total cost that arises when the quantity produced is incremented, the cost of producing additional quantity. In some contexts, it refers to an increment of one unit of output, and in others it r ...

of production, as it is in perfect competition, then ratio of the overcharge to market price is the

Lerner Index The Lerner index, formalized in 1934 by British economist of Russian origin Abba Lerner, is a measure of a firm's market power. Definition The Lerner index is defined by: L=\frac where P is the market price set by the firm and MC is the firm's ...

market power In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market pow ...

. When the overcharge is multiplied by the quantity purchased, it becomes the monetary injury or

damages At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised a ...

incurred by a buyer of goods sold by a

cartel A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mo ...

. The word is also used (as verb and noun) to describe cases where more than an agreed or standard price is charged for goods or services in a transaction, as when a lawyer bills for more hours than actually worked, a restaurant bill includes items not ordered or is added incorrectly, a builder charges an unreasonable amount for repair work, and so on. Overcharging in this sense may in some cases be a criminal offence (charging for work not done), in others not (a high charge when a price was not agreed). The term is used in a different sense in US legal circles; overcharging in this context is a practice whereby the District Attorney's office in a county initially makes criminal charges against a suspect that exceed what is actually justified by the facts to establish a strong

plea bargaining A plea bargain (also plea agreement or plea deal) is an agreement in criminal law proceedings, whereby the prosecutor provides a concession to the defendant in exchange for a plea of guilt or ''nolo contendere.'' This may mean that the defendant ...

position, with the intention of persuading the suspect to plead guilty to a lesser offence to avoid the perceived risk of being convicted of a more serious crime than was actually committed, with more severe penalty.

References

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External links

Price-Fixing Overcharges
Legal terminology Pricing