What's wrong with PRICE-GOUGING? during a DISASTER or any other time?

[Lumpenproletariat]

What's wrong with increasing the price of something when the demand for it increases or the supply decreases? even if this is just a short-term change in demand/supply?

Doesn't the real value of something increase at a time when the demand for it increases or the supply decreases? Shouldn't the price and the real value go up and down together?

What's wrong with profiteers taking advantage of an increased need as a way to make more money, if what they're doing is meeting that need? Isn't it good to satisfy people's needs? even if it's a greedy profiteer who is satisfying the need? If someone is making people better off, why does it matter if they're motivated by greed?

("Price-gouging" here is not to be confused with PRICE-FIXING, where sellers engage in collusion to agree to drive prices higher than the competitive price.)

 

[Derec]

I think there are times when it should be condemned, like with life-and-death situations such as food and water.

But I think allowing the price of gasoline to increase during a shortage would reduce the length and severity of shortages. Increased price depresses demand and allows it to reach equilibrium with supply. If you prohibit price increase, you guarantee that the supply will not meet demand because you eliminated the market mechanism.

A good example is what happened in Atlanta (and elsewhere in the Southeast) in wake of Hurricanes Gustav and Ike in 2008.
Gas Shortage In the South Creates Panic, Long Lines
Post-Ike gas shortage may take weeks to end
At that time gas prices were already high (due to unprecedentedly high oil prices well above $100/bbl) , around $4/gal. Since the consumers were already bemoaning high has prices, the state government to put gas stations on notice about any price gouging, which made the problem worse. Most gas stations had no gas, and as soon as they got some, long lines would form full of drivers who wanted to top off their tanks even with a gallon or two.
Had authorities allowed the price to adjust to supply and go up to $6, $7 or even $8/gal, people would not be so eager to top off, and they would adjust their demand to supply by avoiding unnecessary trips or carpooling. That would mean that those who had to buy gas would swallow the high price but at least they would be able to get gas when necessary because unnecessary purchases would be discouraged by the price. I behaved like that anyway, because I was loathe to sit in line for half an hour just to top off my tank, but most people did not. Allowing higher prices may increase supply as well, as it may make alternate ways to transport gasoline economical.

We may be headed toward a shortage as we speak. Prices already went up $0.40/gal since Harvey hit (but from a much lower baseline). If shortages do develop, I hope the authorities let the price float this time. It is better to pay $3 or even $4/gal for a week or two when you need gas, rather than not having any gas when you really need it.

 

[Keith&Co.]

What's wrong with profiteers taking advantage of an increased need as a way to make more money, if what they're doing is meeting that need?

The first problem that comes to MY mind is that if profiteers can make great deals of money from calamity, they'll be motivated to do what they can to increase calamities.
Like, the problem with letting war profiteers influence diplomacy. They more they profit from wars, they less likely they'll be to support or seek peace.
Similarly, if you know you can price-gouge if there's flooding, you're going to try to limit efforts to build dams, dykes, channels, and other water management systems.

If no one can profit ridiculously from calamity, then they won't block efforts to reduce calamity, to prepare for it, to recover from it.


Also, in general, piracy is looked down upon in enlightened societies. Which is why we block price-gouging AND price-fixing.

 

[dismal]

Also, in general, piracy is looked down upon in enlightened societies. Which is why we block price-gouging AND price-fixing.

I thought "piracy" involved taking things that don't belong to you. Does it now cover willing transactions between buyers and sellers as well?

 

[Elixir]

What's wrong with profiteers taking advantage of an increased need as a way to make more money, if what they're doing is meeting that need?

The first problem that comes to MY mind is that if profiteers can make great deals of money from calamity, they'll be motivated to do what they can to increase calamities.
Like, the problem with letting war profiteers influence diplomacy. They more they profit from wars, they less likely they'll be to support or seek peace.
Similarly, if you know you can price-gouge if there's flooding, you're going to try to limit efforts to build dams, dykes, channels, and other water management systems.

If no one can profit ridiculously from calamity, then they won't block efforts to reduce calamity, to prepare for it, to recover from it.


Also, in general, piracy is looked down upon in enlightened societies. Which is why we block price-gouging AND price-fixing.

We sell a metric shit-ton of disaster-relief-related medical supplies, which is why we deployed our weather-control machinery to the Gulf Coast last month.
Seriously... I just vetoed our weekly newsletter to remove all mention of any of our products, and instead filled it with information about post-flood survival and links to federal resources.
It's difficult in our situation to try to be helpful (beyond the supplies we donate), and not look like we're trying to capitalize on a disaster. I think most reputable Companies are very mindful about avoiding that appearance, even if (especially if) disaster mitigation is their core business.

I don't think that we - or any company in the disaster relief space - is interested in promoting calamities or forestalling efforts to avoid them. No offense taken, but I don't think that catastrophe-advocates (whoever they may be) are a real problem.

 

[laughing dog]

When the supply of the desired good is fixed, price-gouging does not increase the amount of product or service available. It simply acts to allocate those goods to people with most ability to pay - which does not necessarily coincide with the people who most need the product. As Derec points out, that is especially true for necessities like water, food and transportation right after a disaster.

Increases in prices that serve to increase the flow of goods and services quickly to an area do serve a social purpose as well.

Which is why some forms of price gouging raise some people's hackles while other instances do not - it is dependent on the size and rapidity of the increase along with the intrinsic need of the good in question and the effect on supply.

 

[skepticalbip]

What's wrong with profiteers taking advantage of an increased need as a way to make more money, if what they're doing is meeting that need?

The first problem that comes to MY mind is that if profiteers can make great deals of money from calamity, they'll be motivated to do what they can to increase calamities.
Like, the problem with letting war profiteers influence diplomacy. They more they profit from wars, they less likely they'll be to support or seek peace.
Similarly, if you know you can price-gouge if there's flooding, you're going to try to limit efforts to build dams, dykes, channels, and other water management systems.

If no one can profit ridiculously from calamity, then they won't block efforts to reduce calamity, to prepare for it, to recover from it.


Also, in general, piracy is looked down upon in enlightened societies. Which is why we block price-gouging AND price-fixing.

What you are saying is true if you are talking about government officials (policy makers) profiting from disasters. However, I am pretty sure Lumpenproletariat was referring to individuals that have no such control. I remember way back when Hurricane Andrew hit south Florida. Some people were buying plywood, tarps, generators, etc. in North Florida, Georgia, and Alabama and hauling them to South Florida to sell at two or three times what they had bought them for. It was announced that "price gougers" would be prosecuted so that flow stopped even though people in South Florida were lined up and eager to buy that stuff.

 

[Elixir]

It was announced that "price gougers" would be prosecuted so that flow stopped even though people in South Florida were lined up and eager to buy that stuff.

Bullshit. "The flow" could be maintained by the people who routinely handle such products and have them in stock in GA, North FL etc., with only nominal increases in cost, related to expedited delivery expenses. Individuals looking to make a quick killing are not a major - let alone critical - asset to victims in these circumstances.

 

[Keith&Co.]

What you are saying is true if you are talking about government officials (policy makers) profiting from disasters. However, I am pretty sure Lumpenproletariat was referring to individuals that have no such control.

Control, no. But most war profiteers haven't been in government, ju$t had $ome influence with official$ making $uch deci$ion$.

 

[skepticalbip]

It was announced that "price gougers" would be prosecuted so that flow stopped even though people in South Florida were lined up and eager to buy that stuff.

Bullshit. "The flow" could be maintained by the people who routinely handle such products and have them in stock in GA, North FL etc., with only nominal increases in cost, related to expedited delivery expenses. Individuals looking to make a quick killing are not a major - let alone critical - asset to victims in these circumstances.

"'The flow' could be maintained by the people who routinely handle such products" but it wasn't, at least not to the level of demand of people who needed it.

 

[dismal]

It was announced that "price gougers" would be prosecuted so that flow stopped even though people in South Florida were lined up and eager to buy that stuff.

Bullshit. "The flow" could be maintained by the people who routinely handle such products and have them in stock in GA, North FL etc., with only nominal increases in cost, related to expedited delivery expenses. Individuals looking to make a quick killing are not a major - let alone critical - asset to victims in these circumstances.

Not a compelling reason to ban it. Sounds like more of a reason it's not necessary to ban it because it's so risky no one would put in the effort to do it anyway.

 

[coloradoatheist]

Bullshit. "The flow" could be maintained by the people who routinely handle such products and have them in stock in GA, North FL etc., with only nominal increases in cost, related to expedited delivery expenses. Individuals looking to make a quick killing are not a major - let alone critical - asset to victims in these circumstances.

"'The flow' could be maintained by the people who routinely handle such products" but it wasn't, at least not to the level of demand of people who needed it.

Correct. By allowing the gouging it increased the supply until everything returned to normal. Why isn't a bottle of water normally $100 a bottle?

 

[Random Person]

Let the free market set the price. If bottles of water are sold at normal retail then once the supply is gone the merchant may not be able to resupply. Perhaps a gallon of water that sells for $1.29 now costs $2.50 because of delivery challenges, there is going to be no more water at that location.

If the government would allow people to make a reasonable profit then the price would be commensurate with the difficulty of getting the product there.

 

[Elixir]

"'The flow' could be maintained by the people who routinely handle such products" but it wasn't, at least not to the level of demand of people who needed it.

Correct. By allowing the gouging it increased the supply until everything returned to normal. Why isn't a bottle of water normally $100 a bottle?

Hey, I'm all in favor of letting enterprising individuals capitalize on disasters if the companies who would ordinarily provide the needed products have dropped the ball. My ire is reserved for Companies that are well-connected (politically) and try to raise their corporate profits by preying on disaster victims. If the only service provided by price-gouging individuals was transportation of goods, they should have been proactively sub-contracted by suppliers to fill the demand.

 

[Loren Pechtel]

This is a mixed bag.

On one side there's the issue that they are survival goods, raising the price isn't fair to the victims, especially the poor ones.

However, there are two counter arguments:

1) Higher prices encourage the more efficient use of the resources.

2) Higher prices encourage people to spend more in order to make the resource available. In sufficient bulk I could go into Costco and buy bottled water for 20 cents/pint bottle. Lets say Houston is out of drinking water. Would I load up a truck and head there to sell it at 20 cents each? No way. Now, if I could expect to sell it for $1 each the economics look much more attractive. When the choice is no water at 20 cents vs water at $1 which makes more sense?

Many years ago there was a case in the local news that clearly highlighted matters. We had a 27 hour power outage (wildfire took out a line, what power was left was directed to places like hospitals) and one gas station remained open--but their prices went up. Big outrage--and their simple reply: They were simply recouping the cost of the generator they had bought for emergencies. We left town before the dust settled on that, I don't know the final outcome.

I don't know which approach is better.

 

[Horatio Parker]

In English, the Theory of Second Best basically says that if all the assumptions of the mainstream theory do not hold in a particular situation, then trying to apply the results of the theory in that case is likely to make things worse not better.

So “if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the ones that are usually assumed to be optimal” (Source).

This is very applicable to the use of the model of perfect competition which requires several assumptions to be valid (for example, perfect information, perfect flexibility of prices, perfect foresight, no market power being wielded by firms, workers or anyone etc) for the main theoretical insights (results) to have validity.

Virtually none of the required assumptions apply in the real world.

So if they do not then it cannot be concluded that it is efficient to price gouge in a market where the essential characteristics of the textbook model are not fully present.

It is “really terribly, terribly, simple”.

http://bilbo.economicoutlook.net/blog/?p=36750

 

[coloradoatheist]

Correct. By allowing the gouging it increased the supply until everything returned to normal. Why isn't a bottle of water normally $100 a bottle?

Hey, I'm all in favor of letting enterprising individuals capitalize on disasters if the companies who would ordinarily provide the needed products have dropped the ball. My ire is reserved for Companies that are well-connected (politically) and try to raise their corporate profits by preying on disaster victims. If the only service provided by price-gouging individuals was transportation of goods, they should have been proactively sub-contracted by suppliers to fill the demand.

What is your best example of that? A company that can just go after disasters?

 

[Elixir]

Hey, I'm all in favor of letting enterprising individuals capitalize on disasters if the companies who would ordinarily provide the needed products have dropped the ball. My ire is reserved for Companies that are well-connected (politically) and try to raise their corporate profits by preying on disaster victims. If the only service provided by price-gouging individuals was transportation of goods, they should have been proactively sub-contracted by suppliers to fill the demand.

What is your best example of that? A company that can just go after disasters?

ServPro is an example of a Company the "just" goes after disasters. Note that their advertising in the wake of disasters is quite subdued, but in the 1-2 weeks leading up to Harvey they were all over the media.

Lowes/Home Depot is a company that stocks provisions deeply, and should have response mechanisms in place that seem to be lacking, opening the door for individual opportunists.

 

[coloradoatheist]

What is your best example of that? A company that can just go after disasters?

ServPro is an example of a Company the "just" goes after disasters. Note that their advertising in the wake of disasters is quite subdued, but in the 1-2 weeks leading up to Harvey they were all over the media.

Lowes/Home Depot is a company that stocks provisions deeply, and should have response mechanisms in place that seem to be lacking, opening the door for individual opportunists.

I looked up serv pro and they specialize in repairs after fire and flood, etc. So if that company didn't exist what would happen to normal people after fire or water damage to their house or apartment occurred?

Not sure what your comment about Lowes is. It costs a company a lot of money just to store stuff, especially as big as those two companies. If you want them to store things in case of bad things, then it drives up the prices.

- - - Updated - - -

I can try and find it, but it listed about 15 professions, and the only one that really cared about your good outcomes was a prostitute.

A lawyer wants you to commit crimes
A doctor wants you to get sick
A dentist wants bad teeth....

etc

 

[Sarpedon]

Ah, America! Where else can you find people who claim to be Christians shouting to the rooftops how it is moral to exploit the poor during natural disasters?

Jesus said a number of things about how you should help people without regard to earthly profit. I shouldn't have to tell you what's wrong with it.