However, price-gouging is a felony in many American states. After hurricane Katrina, when profiteers tried to make money from selling diesel generators at well above market value, there were even calls for a national price-gouging law. Also, consider the outcry when a Starbucks’ clerk charged a New York ambulance crew the market rate for mineral water in the immediate aftermath of 9/11. Can you imagine how much louder the clamour would have been had Starbucks charged double the going rate simply because that’s what the market would bear? Clearly, price-gouging is a very emotive issue, and one that economic models can’t rationalise away. Nevertheless, anyone looking for a primer on how the ‘invisible hand’ steers prices in the market could do worse than read The Price of Everything.
Clint Witchalls is a former business analyst who writes for the Economist, the Guardian, the Observer and the Times
Comments
colson
September 29th, 2008 3:36pmI can't think of any single excuse for the existence of the phrase "price gouging" with exception to taxation. Even in the post 9/11 moments, water was generally in abundance and easily had. As I am sure the author has been to or is aware of: New York has a lot of resources nearby in terms of restaurants, bars, coffee shops and other places where water can be had. There was a reasonable expectation that water could be had relatively quickly. In the Post Katrina mode, much of the water system was tainted. Many of the merchants who did survive the floods had no reasonable expectation of when their future supplies were going to be replenished. The impact of Katrina's devastation was regional in nature while 9/11 had a greater impact in a very concentrated (relatively speaking) way.
Maybe a more prescient example of what happens when goods are in short supply is to look at new video game system releases. Retailers are largely forced to sell the products at a fixed retail cost. Other smaller stores have often-times moved towards market-based pricing to move the game systems. Why? The small retailer who tends to carry fewer systems than are allotted to retailers can keep the product in stock. At the same time, the value of the game system is always higher than the sale price required of most retailers. This is why you see eBay auctions spring up to capture that additional, immediate increase in value.
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josh
September 29th, 2008 2:46pmThe fact that gouging is an emotive issue is kind of the point, isn't it. He's arguing that people should be rational and realize that "gouging" is actually necessary and good.
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Luis
September 28th, 2008 9:41pmClearly diesel generators were not 'well above market value' if there were people willing to pay for them.
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noahpoah
September 28th, 2008 8:30pmThe argument is something along the lines of: if vendors are allowed to raise their prices, it will mean that the first people to the store can’t buy all the provisions and therefore there will be some left over for those who get there late.
No, it will mean that only people who value the product sufficiently highly will buy it, making it more likely (not certain) that stock will remain. The first to arrive will buy however much stock they think is worth it to buy.
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