Overcharge

Overcharge

[v. oh-ver-chahrj; n. oh-ver-chahrj]
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.

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