In Defense Of “Price Gouging”

Empty-Shelves

There’s a natural disaster and an emergency on the east coast right now, so of course politicians are scrambling to issue strong denunciations of “price gouging.” Case in point, New Jersey Governor Chris Christie:

Gov. Chris Christie issued a forceful reminder to merchants: Price gouging during a state of emergency is illegal; will be investigated by the Attorney General and Division of Consumer Affairs; and will result in significant penalties.

“During emergencies, New Jerseyans should look out for each other — not seek to take advantage of each other,” the governor said. “The State Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.”

The problem with this is that it completely undermines the market’s ability to maintain steady supplies through price rationing.

We’re all more than happy to take advantage of lower prices when dropping demand, or expanding supply, makes a given product cheaper. Yet when conditions change to contract supply, or if demand suddenly skyrockets, we make the corresponding price hikes illegal?

That’s not how markets work.

If prices aren’t allowed to reflect the realities of supply and demand, then the market cannot function to continue providing adequate supply. For instance, stores that quickly ran out of things like bottled water, canned goods or gasoline during this east coast emergency might have seen their supplies last longer, and be distributed to a larger number of customers, had they been allowed to adjust prices accordingly.

Sure, customers pay dramatically higher prices in the short term, but we’re also talking about more gasoline, more bottled water and more canned food available for everyone instead of supplies running short after a smaller number of customers stockpile thanks to lower prices.

When we talk about price gouging we talk about retailers taking advantage of customers. But when laws are implemented prohibiting retailers from changing their prices in response to changes in supply and demand, who is taking advantage of who?

Communities would be better served if, in times of disaster, retailers were allowed to raise their prices.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • Gern Blanston

    Oh! But then only the rich will get their supplies!!!
    (of course, one has to ask how many have gone without supplies given the lower prices that allowed folks to stock up more prior to the stores running out).

  • http://proof-proofpositive.blogspot.com/ Proof

    Goods in short supply are generally restocked at a higher cost to the retailers as well. If a retailer has to hire additional transportation to bring in additional goods, he may also have to pay the driver a premium to weather the storm or to make a certain deadline, or both. If prices are kept artificially low when the costs of resupplying those goods goes up, it may be in the retailers best interest to let the shelves go empty.

    Ask the consumers if they’d rather pay a higher price for those goods or do without completely? Higher prices also discourage hoarding, which itself diminishes the supplies of available goods.

    • http://sayanythingblog.com Rob

      Good point. I think what a lot of people miss is that retailers want to sell their goods. They make money on volume, for the most part, not selling one very expensive case of water at a time.

      They aren’t going to price themselves out of the market, but they should be allowed to let prices reflect the realities of the market.

      • http://proof-proofpositive.blogspot.com/ Proof

        Another joker in the deck, that the central planning bunch can’t seem to fathom, is competition. The retailer takes certain risks in that situation weighed against any potential reward. He has no guarantee that one or more of his competitors, or even some wildcat entrepreneur, might not go out and do the same thing, perhaps at a greater efficiency or content to take a smaller margin and undercut prices. He could be stuck with inventory he has to sell at a loss or not at all.

        If the government is going to impose price controls, it will have a chilling effect on people willing to risk their capital to provide goods in times of disasters.

  • Roy_Bean

    If a willing buyer pays the price asked by a willing seller then you have the free market functioning as it should.

    Do you think they should also outlaw tax gouging? It seems like government always uses these disasters as an excuse to raise taxes.

    • robert108

      All taxation above the level needed to maintain Constitutional govt action is gouging. We have been getting gouged on our taxes since FDR.

  • borborygmi

    Good for those shop keepers, hopefully the people will continue to patronize them after the emergency. It isn’t as if they didn’t have water to drink. Plenty all around them. Just have to boil it a little bit. Hoarders are just people with foresight. If people can’t afford the higher prices become scavenger. It should weed out some of the 47% leeches. “Please sir may I have some …more?” No dammit what do you think this is charity! Hurricanes Conservatives natural method of population control.

    • http://sayanythingblog.com Rob

      Well setting your leaps of fantasy aside, allowing prices to accurately reflect market conditions directly addresses the problem of hoarding.

      It stops people from hoarding, encouraging them to buy in quantities more suited to their needs, thus making more supply available for all.

      What do you have against that?

    • robert108

      “Hoarders are just people with foresight.”
      Yeah, OCD is “healthy”. Right.

      • Spartacus

        If their hoarding staples like milk and meat during a disaster that knocks out their electricity for an extended period of time hopefully they have the foresight to conserve their cell phone battery, they’ll need it to call 911.

  • SigFan

    Are there actual cases of “gouging”? Unfortunately, yes there probably are. Some small number of people will take advantage of a bad situation to try to line their pockets. It’s an unfortunate but inevitable effect of human nature. However, what some call gouging is really just rational reaction to market conditions and supply and demand. Any merchant that wants to remain in the good graces of his/her customer after the crisis has passed won’t charge more than what the market will bear. And as others point out, in crisis times the restocking of items will cost that merchant more so prices need to adjust so that those items can be restocked. It’s just the way that business works.

    • borborygmi

      “Are there actual cases of “gouging”? Unfortunately, yes there probably are. Some small number of people will take advantage of a bad situation to try to line their pockets. It’s an unfortunate but inevitable effect of human nature” Nah you have it all wrong thats just free market enterprise. Just ask Rob. gouging doesn’t exist. Other then that your reply is spot on or as 7.62 would put it x10

      • Fatalerror94

        No, it’s, as John Stossel said, just information. When supplies dwindle or supply routes are choked off because of a disaster, the logical response is an increase in price to reflect this. There are some positives to this; higher prices can put a stop to stockpiling, leaving more for others and It can serve as a signal and incentive to other suppliers to try and fill the deficiency.

        Our free market system is vastly superior to the Socialist “common store” that, even in the best of times, is long on lines and short on everything else.

  • borborygmi

    of course there is the example from Katrina In addition to what they sold as a result of quickly re-opening their stores, Wal-Mart also provided a large amount of free merchandise, including prescription drugs, to those in the worst-hit areas of the Gulf Coast. For example, several truckloads of free items went to New Orleans evacuees staying at the Astrodome and the Brown Convention Center in Houston. Damn it why didn’t they price gouge. WalMart more ethical then Rob?

    • http://sayanythingblog.com Rob

      Walmart, unlike a lot of smaller and more regional competitors, has a vast national network of stores and supply lines to fall back on.

      If Walmart doesn’t need to raise prices to maintain supplies in disaster-afflicted areas that’s a real testament to their business model. But not all businesses are Walmart.

    • robert108

      Free people making free choices, as opposed to govt mandates. The choice is easy. You left wingers just assume that everybody is as greedy and power hungry as you are.

  • reggy

    I don’t see how Christie saying, essentially, “try not to be dicks and if you break the law you’ll be punished” is some communist manifesto.

    • http://sayanythingblog.com Rob

      I don’t see where anyone is saying that it’s a communist manifesto.

      Just pointing out, accurately I might add, that the public is served best by a free market. Even in times of emergency.

      • robert108

        Especially in times of emergency. That’s where free markets shine.
        Immediately after Katrina, massive amounts of aid was available from private sources, and at a competitive price, but the govt monopoly delayed the supply and raised the price.

        • The Revealer

          Robot108: “….massive amounts of aid was available from private sources, and at a competitive price,…..

          Ya gotta be kidding me. Aid is given free of charge at the time of need.
          You sir, you need your brain examined. The sooner the better.

    • borborygmi

      Because where Commiemarxistsocialists worship the state and the community Rob worships the$. Compassion from him stops where it might cost him a buck.

      • robert108

        Actually, you guys worship power and other peoples’ money, and real Americans worship free people making free choices and keeping the money we earn. Your “compassion” is just a ruse to cover up your intent to enslave us with govt handouts.

        • The one you love

          Profits don’t make things more expensive, they make things not only cheaper, but more available.
          robert108 in reply to realitybasedbob

          Robot108: “….massive amounts of aid was available from private sources, and at a competitive price,…..”

  • robert108

    The higher price calls forth more supply; basic market econ. Right on target, port. Govt control to implement social policy crashed the mortgage and financial markets, and always produces much more harm than good. The problem is that it sounds “caring” and “fair”. We sure don’t need any more liberalism in this country. It has already done considerable damage.

  • JW-American

    now would be a good time for those super Couper’rs to open up their stashes and re-sell their basements full of food/stuff they didn’t need in the first place to help their neighbors.

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