Assault Weapon Bans, Grandfathered Guns, and Market Prices
On July 29, the House of Representatives passed the Assault Weapon Ban of 2022 (HR 1808). The bill would prohibit the sale, import, or possession of new “assault weapons” and large capacity magazines, as defined in the bill. The definition section includes not only features or components that bring a weapon under the ban, but also long lists of specifically-prohibited and exempt gun models. There is a broad exception for law enforcement entities (including college campus police). The bill also contains a grandfather clause saying that the prohibition “shall not apply to the possession, sale, or transfer of any semiautomatic assault weapon otherwise lawfully possessed under Federal law on the date of enactment of the Assault Weapons Ban of 2022.” At the same time, the bill provides that grandfathered weapons already in circulation can be sold only by including a federally-licensed firearms dealer (FFL) in the transaction; the FFL must take physical custody of the weapon and conduct a background check on the prospective purchaser:
(t) (1) Beginning on the date that is 90 days after the date of enactment of the Assault Weapons Ban of 2022, it shall be unlawful for any person who is not licensed under this chapter to transfer a grandfathered semiautomatic assault weapon to any other person who is not licensed under this chapter, unless a licensed importer, licensed manufacturer, or licensed dealer has first taken custody of the grandfathered semiautomatic assault weapon for the purpose of complying with subsection (s). Upon taking custody of the grandfathered semiautomatic assault weapon, the licensee shall comply with all requirements of this chapter as if the licensee were transferring the grandfathered semiautomatic assault weapon from the licensee’s inventory to the unlicensed transferee.
This provision was not included in the 1994 assault weapons ban; it is one of the important differences between the new bill and the previous ban.
It seems very unlikely that the bill will garner enough votes in the Senate to overcome a Republican filibuster, though it is not completely impossible, given the number of Republican Senators who voted for the Bipartisan Safer Communities Act in late June. Even if the assault weapons ban does pass, it is unclear whether such a law would survive a Second Amendment challenge after Bruen—the concurring opinions in that case left a lot of unanswered questions about the fate of assault weapon bans, and these bans were often upheld under intermediate scrutiny (which Bruen rejected). Nevertheless, this post explores what is likely to happen if a ban on certain firearms models were to pass at some point—specifically, a ban structured like HR 1808 that prohibits certain types of new firearms, exempts those already in circulation, and provides that owners of grandfathered guns can transfer them only via an FFL. My reading of HR 1808 suggests that FFLs would still be able to sell grandfathered assault weapons, though they would have to conduct background checks on purchasers as required by federal law.
We start with some observations from “Economics 101” about supply, demand, and prices: if supply decreases while demand remains constant (or increases, which is the most likely result of such a ban), the market price of the item will increase. So, on the one hand, limiting the supply of new assault weapons would be expected to make the millions of grandfathered weapons much more valuable. The supply is now limited to the existing supply in circulation, and specifically to the number that owners are willing to sell.
Price effects may not be that simple, though, because the lag time before a law goes into effect allows for customers to go on a buying spree while the weapons are still legal, and for manufacturers to ramp up production to meet the temporary spike in demand. This type of run on the gun stores can make prices rise before the ban goes into effect. However, immediately after the ban goes into effect, prices could fall because potential customers have already bought the guns they would want and manufacturers and dealers may attempt to liquidate unsold inventory on the eve of the ban going into effect. A 2002 academic study by Christopher S. Koper and Jeffrey A. Roth observed this price effect surrounding the 1994 assault weapons ban. Prices rose immediately before the ban went into effect, and then fell to pre-ban levels in its immediate aftermath (note the study covered only a 2-year period) because so many more guns flooded the market right before the ban. But this fall in prices did not translate into more guns in the hands of criminals; instead, gun traces for banned weapons retrieved from crime scenes fell significantly after the ban went into effect. Koper and Roth surmised that the rise in prices before the ban made the affected guns unaffordable for many street criminals, and the surplus stock from the pre-ban rush stayed in the hands of collectors and dealers even after the prices returned to their pre-ban levels.
A similar phenomenon occurred after the ban on new machine guns—the market prices for the grandfathered machine guns (even apart from the special federal licensing fees) went WAY up, into the tens of thousands of dollars, which made them unaffordable to most petty criminals like burglars, muggers, members of street gangs, etc. Note that purchasers of machine guns must also obtain ATF approval, a requirement not included in the new House bill for semiautomatic weapons. A person who is not an FFL will pay well over $15,000 for a machine gun, and have to get special ATF approval, though FFLs can acquire machines guns for significantly lower costs and skip the special ATF application process (see here).
If prices go up as a result of a ban like that contained in the new bill, it could benefit current owners of the covered guns, because their grandfathered guns would have a higher resale or trade-in value. Routing all private sales through an FFL also has a number of secondary effects. FFLs can charge a fee for the service, though this is likely to be modest (FFLs also benefit from the extra traffic into their showroom, as some customers will purchase gun accessories or ammunition while they are in the store). Once the private seller and the buyer are in the FFL’s store, the FFL might be able to offer to beat the price—either offering the seller more than the buyer is willing to pay, or offering the same/similar model to the buyer for less than the private seller is offering, depending on the situation.
A 1995 study by Cook et al. about the correlation between primary retail prices for guns and street prices for privately-sold guns revealed a street markup of 3 to 6 times the FFL price in states that, at the time, imposed various recordkeeping or reporting requirements on dealers (the NICS background system was not yet operational in the study period). That’s a hefty price premium for bypassing FFL requirements like background checks. If the new House bill goes into effect, legal purchasers will have to go to an FFL to consummate a private sale. Unless the private sellers offer lower prices than the FFLs offer for the same model, buyers might as well buy directly from the dealer—there would be no reason to pay a private seller more than the dealer offers.
I expect that the requirement that an FFL is part of every transfer will incentivize current owners to trade in their guns to the FFL directly rather than go through the inconvenience of finding a private buyer and meeting up at an FFLs location. The rule should give FFLs more bargaining power in what they will pay for trade-ins.
To make an analogy to cars, imagine a hypothetical fuel-economy law that banned the sale or import of all new non-electric SUVs and pickup trucks, but allowed current owners of gasoline-fueled SUVs to keep their cars. And imagine that current owners could sell their grandfathered SUVs at a car dealership—the dealership would have to process the transaction, even if the SUV sale was occurring between neighbors or friends. SUVs are very popular, so cutting off the supply of new SUVs would push all the demand for those cars to the used-car market. The result would be that used SUVs could sell for much higher prices—eventually, as much as several times what the current owner paid for the vehicle, because there would be no competition from new cars coming into the market. On the other hand, as anyone who has sold their used car to a dealership has discovered (including those who used it as a trade-in for a new purchase), car dealerships pay less for your used car than you might get from a private buyer because they have more bargaining power. Applying the analogy to firearms, requiring that private sales involve an FFL would offset some of the expected price increase or added value for currently-owned guns.
Another phenomenon is also likely to skew prices upward after a ban-with-grandfathering goes into effect: speculators. When new production halts, individuals or firms with money to invest can go on a rapid buying spree, knowing that the new limit on supply will drive prices, at least initially. The speculation phenomenon itself drives up demand, at least in the short term, making prices rise faster, as happened in the lead-up to the 1994 ban. Koper and Roth thought that the return of prices to pre-ban levels in 1994 was partly due to a flaw in the law that allowed substitute assault weapons to be produced that had only minor cosmetic changes—so, within a year or two, the industry adapted and found ways to work around the law and resume production and sales. The House bill seems tailored to avoid that problem, but it is hard to predict how industries will adapt to new regulatory environments.
Even after the prices stabilize at a new, higher equilibrium, as they did with machine guns (based on the regular demand of individual buyers, the limited supply of grandfathered guns, and the limited supply of legal sellers), it may be possible for successful speculators to manipulate prices further upward by hoarding their supply. Speculation and hoarding are a quirky, unpredictable phenomenon in economics that has received little academic attention, so it is hard to predict just how high speculators in grandfathered guns can drive prices – and whether prices would remain constantly high (like diamonds, the prices of which are stabilized by a few corporate hoarders) or would fluctuate wildly, like some of the precious metal markets (where maverick speculators can disrupt a price equilibrium at any time). In either case, this means that the guns currently owned and grandfathered under a new ban would become much more valuable (current owners could realize windfall profits, in theory), but it also means many people who want to buy a gun in the future would have to pay exorbitant prices, and many would be priced out of the market (again, like buying diamonds or precious metals).
Some final, tertiary effects on prices: as a commodity rapidly increases in price, it attracts not only speculators, but also thieves. A potential thief would rather abscond with diamonds than thumbtacks, so the grandfathered guns in our scenario would become an irresistible target for thieves. This means that owners—and especially speculators and hoarders—would have to invest more time and money in security, and this cost would either be passed through to future purchasers (increasing prices even more) or would have to come out of the profits of the speculators and hoarders. Caveat: Koper and Roth, in their study of the 1994 ban, reported: “In the short-term, this effect does not appear to have been offset by any market adaptations, such as an increase in thefts of [assault weapons].”
How all this affects street crimes depends heavily on one’s assumptions about the financial resources of “criminals.” If we think criminals either have vast financial resources or have a high success rate at theft or finding owners willing to make an illegal sale—the two options for avoiding a background check—and eluding law enforcement, then a disproportionate share of super-expensive grandfathered guns will end up in the hands of criminals and simultaneously be completely unaffordable for almost everyone else. Of course, having to pass a background check will screen out those who already have felony convictions or other disqualifiers, but those without felony convictions or other disqualifiers would still be able to pass a background check in a transaction conducted through an FFL—so their main obstacle to acquisition would be the inflated prices. On the other hand, if we think most criminals are poor, and not very resourceful (not consistently successful in their crimes and/or frequently get caught), then criminals would be disproportionately disarmed by a substantial price increase, at least in terms of the grandfathered guns, and the guns would be mostly in the hands of wealthier law-abiding citizens.