# Overcharge

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For other uses, see [Overcharging (disambiguation)](/source/Overcharging_(disambiguation)).

**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](/source/Collusion).[1] The latter is often called a "but-for price" or a competitive "benchmark price". When [collusion](/source/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](/source/Profiteering_(business)) and [price gouging](/source/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](/source/Marginal_cost) of production, as it is in [perfect competition](/source/Perfect_competition), then ratio of the overcharge to market price is the [Lerner index](/source/Lerner_index) of [market power](/source/Market_power).

When the overcharge is multiplied by the quantity purchased, it becomes the monetary injury or [damages](/source/Damages) incurred by a buyer of goods sold by a [cartel](/source/Cartel).

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](/source/Overcharging_(law)) is a practice whereby the [District Attorney](/source/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](/source/Plea_bargaining) 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

1. Fraser Davison. ["Covid-19 and cartel overcharge estimation"](https://www.frontier-economics.com/uk/en/news-and-articles/articles/article-i7526-covid-19-and-cartel-overcharge-estimation/#). Frontier Economics. Retrieved December 6, 2022.

## External links

- [Price-Fixing Overcharges](http://www.agecon.purdue.edu/staff/connor/papers/PRICE%20FIXING_OVERCHARGES_FULL_TEXT.pdf)

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Adapted from the Wikipedia article [Overcharge](https://en.wikipedia.org/wiki/Overcharge) by Wikipedia contributors ([contributor history](https://en.wikipedia.org/wiki/Overcharge?action=history)). Available under [Creative Commons Attribution-ShareAlike 4.0 International](https://creativecommons.org/licenses/by-sa/4.0/). Changes may have been made.