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Capitalizing on hurricanes Irma and Harvey: $6,785 for an economy seat
- refurb 9y agoI think the picture of the shopper with hundreds of bottles of water illustrates the problem nicely. In a disaster, demand changes. If you artificially keep prices from increasing, you'll have shortages. And likely those shortages are due to customers buying a ton of product and just selling it on the side at a higher price.
- macrael 9y agoAh, the "well someone else is going to be a shit about this so I might as well be the one that profits" argument.
- judah 9y agoAlso known as, "Embrace reality argument", because this is what people actually do. Capitalism works because people are greedy, and it takes advantage of that.
- frgtpsswrdlame 9y agoOr we could stop saying "races to the bottom are inevitable, just accept them" and work on preventing them, especially in disaster situations.
- clavalle 9y agoBut it only works when that 'greed' (I prefer 'self-interest') is directed toward creating value. Greed can be a good motivator but greed can be destructive to the market, too. See: Rent Seeking, Predatory Pricing, Protection Racket etc.
- sodawater 9y agoYour reaction is totally knee-jerk. How do you best distribute scarce resources? Take bottled water. If you allow people the freedom charge more, it makes consumers conserve water more. When you introduce a profit motive it incentivizes people to bring water to the disaster area. And if you don't afford people the freedom charge more, then you're simply changing the constraint from "who can afford it" to "who can get there first". I ought to turn this around back on you and say "Oh, what about the sad soul who didn't have a car - You are discriminating against them with your price controls - because they can't make it to the store quick enough." Then - when they do decide to voluntarily buy water at an increased price, that's because the water has _more_ value than the money they forked over for it.
- macrael 9y agoIf you're worried about resellers, then limit how much a single person can walk off with. Raising the price doesn't magically prevent shortages. It also makes it so some can't get what they need, just by the principle of who can afford it as opposed to first come first serve.
- jonknee 9y ago> And likely those shortages are due to customers buying a ton of product and just selling it on the side at a higher price. So have a max per person? Economic theory is nice and all, but limiting disaster supplies to wealthy people is not an acceptable answer.
- darawk 9y agoWell, economic theory would ordinarily indicate that supply would increase to meet demand. That is, if a plane ticket starts costing $6500 for an economy seat, more people will enter the airline industry, and the prices will fall. And in the case of more elastically supplied goods (e.g. water) during a disaster, that's probably correct. But airplane seats are fairly inelastic. So, I think that's the tension we're seeing here. I'm not sure what the solution is though. The reason for the high price is fundamental: there are a limited number of seats available. You'd better believe every available seat will get sold to someone, and they have to be allocated somehow.
- panarky 9y ago> they have to be allocated somehow There's a proven algorithm to allocate scarce resources without price-gouging. That algorithm is called "first-come-first-served-with-quantity-limits".
- varjag 9y agoThis is the best algorithm to emerge a black market. Then you can have both first-come-first-served AND price gouging!
- whyaduck 9y agoGiven the existing laws, stores engaging in price gouging essentially are a black market. You don't stop trying to manage a disaster just because there's no perfect solution.
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- frgtpsswrdlame 9y ago>In a disaster, demand changes. If you artificially keep prices from increasing, you'll have shortages. You'll have shortages anyway. The idea here is that in a disaster it's immoral to ration essentials by wealth.
- bklyn11201 9y agoI agree it's immoral to price gouge during a disaster. While rationing solves the allocation issue, it provides zero incentive for people to introduce more supply by opening up warehouses of goods or re-routing airplanes from other regions to fly more people out. A man during Katrina bought 19 generators, drove 600 miles, and sold them for 2x his cost. I would argue his actions were moral and helpful. He was jailed for price gouging. http://abcnews.go.com/2020/Stossel/story?id=1954352&page=1 http://abcnews.go.com/2020/Stossel/story?id=1954352&page=1
- frgtpsswrdlame 9y agoI don't understand your position, do you believe gouging is immoral or moral? You've stated both.
- josefresco 9y ago"zero incentive for people to introduce more supply" Of course! That's why we have government, and pay taxes, so that things like disaster relief can be executed without working about "economic incentives". See health care. ducks
- refurb 9y agoFEMA to the rescue! /sarcasm
- josefresco 9y agoFEMA might have been a joke during Katrina, but that doesn't mean we should simply blow it up and turn to the "free market". Fix FEMA or your government if they are dysfunctional.
- deleted 9y ago[deleted]
- danharaj 9y agoSo either you have hoarding or you have price gouging. This isn't a natural inevitability, it is specifically tied to markets. In extreme situations like natural disasters, markets behave in this way. So some people blame price gougers, and others consider it the only reasonable thing to do. I think we should consider such extreme situations as evidence of the limits of markets for distribution. There are other ways to distribute goods and they may very well be superior in such situations. However, it is completely untenable because markets are politically inviolable these days. Even if you want to stop something you consider perverse (price gouging), you have to do it with a market mechanism (price controls), but this is a failure mode of markets, not something you can band-aid while staying within markets. And to emphasize the point: It isn't worthwhile to consider gouging a moral failure on the part of individual actors. Either they do it, or someone else hoards. You can call both despicable but that doesn't fix the economic pathology. Focusing on individual actions blinds one to the setting in which they take those actions.
- iopq 9y agoPrice gouging is not perverse, price gouging is a control on hoarding.
- danharaj 9y agoYou can't think of any perverse effects on distribution that price gouging can have?
- Bud 9y agoYes, we can, but the argument is that the effects of higher prices are less severe than the effects of hoarding.
- qubex 9y agoOn the contrary, heightened prices can make hitherto-unprofitable supply chains feasible and bring more of the good to the market even during the period of inelastic shock.
- stretchwithme 9y agoIt's the stores inability or unwillingness to charge a higher market price that allows the hoarder to buy all that water. When you shame pricing based on market realities, known entities like grocery stores don't do it but unknown entities like random guy down the street will take advantage of the opportunity. And chances are he won't be paying taxes on his profit either. And if somehow you are successful at stopping higher prices from being paid, you take all the profit out of rushing resources to the disaster zone. You can even reduce the flow of resources BEFORE the storm hits. People also may not realize how scarce a resource is or will be in the price stays as low as it usually is. Prices SHOULD be going up when a storm is imminent. High prices greatly increase the chances that products will be available even when scarce. And prices that are too low for market realities ensure shortages. I, for one, would rather pay a higher price than not have access to the resource at all. Prices serve useful functions in the marketplace and we benefit most when everybody understands that. We'd be far better off if we let the market function and instead give victims extra cash to get what they need.
- whyaduck 9y agoIt's the store's unwillingness to do the obvious thing and limit sales of water given the sharp rise in demand in the face of a life threatening disaster. Resources aren't rushed to disaster areas in response to profits - they're rushed in response to the disaster. See FEMA, USRC, etc.
- stretchwithme 9y agoStores compete with each other. While it might be great if retailers limit what people can buy, they have to punish themselves to do it. So it's not a very useful expectation. And, no, resources aren't rushed to disaster areas if those that have to expend extra effort to do so will simply be punished. I'd rather rely on those who've been delivering everything efficiently already than wait for the government to do it. It's not clear to me that government doing this costs us less. Most of the cost is hidden away in the federal budget. At least when I am paying a high price for gas, I am paying for the actual cost of getting it to me, including paying for logistics.
- JustSomeNobody 9y agoIn fairness, we don't know if she was buying for her or her and several of her neighbors. So, while a picture tells a thousand words, it can very well tell the wrong thousand.
- sbenitoj 9y agoBingo!
- deleted 9y ago[deleted]
- Retric 9y agoThe assumption that a cart with that much water must be for a single family is annoying etc. It could just as easily been a shelter stocking up.
- maxerickson 9y agoI really hope that shelters aren't sending people out to buy water by the case at retail prices. Like, the state emergency management should be selling it to them by the pallet at wholesale and delivering it. (Florida devotes lots of resources to these problems; they are providing fuel tankers with police escorts to gas stations...)
- Retric 9y agoLogistics is hard. You can get it right 499/500 and still end up with someone going to the local office supply store etc.
- cptskippy 9y agoIt could just as easily have been someone stocking up to sell on the side of the road for $10 a bottle.
- rhapsodic 9y agoThere are sound, morally justifiable reasons for allowing the prices of goods and services to be set by market conditions, even during times of crisis and severe shortages. But it's a waste of time to try to explain them to someone who exhibits the same knee-jerk response as this article.
- phailhaus 9y agoOkay, what's one? How do you defend price gouging water and airline seats during an emergency?
- josefresco 9y agoI don't see how it's defensible... Let's say airline X jacks rates during a crisis. The "free market" reaction would be that people would be outraged by airline X, and would then during the crisis and in the future not use them - thereby hurting their business/brand. A competitor, airline Y who didn't jack rates would then get current & future business based on their noble actions during the crisis. The free market would solve the problem by itself ... right? Except wait... the people in the current crisis, aren't helped at all. And of course, there's no guarantee that airline Y doesn't jack rates during the next crisis. Anyone else have a reasonable counter-argument? Edit: Meant for my reply to be for rhapsodic - sorry.
- rwallace 9y agoNo, the free market reaction is that all the airlines notice airline seats from the Caribbean are way more valuable right now, so they divert resources from nonemergency areas to put on extra flights out of the Caribbean, as many as the airports can take, so more people are helped. If there's a law against price gouging, the airlines won't bother doing any such thing, because they have no incentive.
- josefresco 9y agoLOL. So you're saying a for-profit company, who's sole purpose is to increase revenue/stock value is going to do the right thing, and divert flights, leave their gouging money on the table, just to serve those in need? Don't hold you breath.
- csomar 9y agoYou can't fix this. You either have a free economy or you don't. What you need to ensure is that there is at least a few airlines and they are not cooperating to manipulate prices. Now you say: But there is the case of "natural disasters". So what? There are ordinary people going through disasters everyday, not necessarily natural. Should we go out of our way to accommodate them. Most importantly, if you accommodate enough people during natural disaster, you no longer have this supply/demand imbalance. Bam, problem solved. Also consider the following: Capitalism kills the lower end who can't sustain itself. Socialism, so far, kills the whole system because the whole system can't sustain itself. Pick which one.
- whyaduck 9y agoThis is just deification of capitalism and conflating decency in the face of a life threatening situation with "socialism". Others have already answered the question of what to do, but I'll repeat. Don't raise prices and let the goods sell FIFO with reasonable limits on quantities. Raising prices during a disaster does absolutely nothing to increase supply.
- csomar 9y agoSo you are just picking a different population. How is that more efficient than the free market other than making you feel good and compassionate.
- mfringel 9y agoA different and likely larger population that's more likely based on need. In the event of a disaster, I assert the thing you're sat-solving for is "as many people as possible getting enough of a constrained resource to survive long enough to get out of the disaster condition". In my mind, that's both good and compassionate.
- whyaduck 9y agoI believe in my case, the population would be people who can make it to the store - unchanged from what it was before the store started limiting quantities. I'm having a hard time not getting snarky here because, to be honest, you don't seem to be arguing in good faith.
- pygy_ 9y agoThe flight prices increases makes it look like someone (neglectfully?) forgot to disable the supply/demand price modification algorithm...
- stronglikedan 9y agoI don't know why they would disable it, or why it would be neglectful for them not to, from a business perspective. As long as they are charging the same prices for the same supply/demand ratio that they normally would, then it's not considered gouging (I don't know if they are or not). Granted, it would be nice for them to disable it so that people can get affordable flights, but they are a business after all is said and done, and I have no doubt they'll fill all their seats regardless of the prices.
- kwerk 9y agoI'm in South Florida and facing this trying to book flights out (getting stuck on I-95 with a two year old won't work for us). The airlines have adjusted their rates (it seems) but you can only find tickets if someone cancels. I used the Chrome Puppeteer API to check Delta once per minute and grabbed tickets for $130 per passenger.
- sna1l 9y agoIn regards to the airlines, is most of the price setting automated? Or is it a manual process?
- MrMember 9y agoA mixture of both. There are immense applications calculating fares based on a ton of factors (estimated demand, seasonality, competitor prices, and much much more) but analysts can tweak and modify markets manually as well.
- dsfyu404ed 9y agoIf you're not prepared you will pay somehow.
- BFatts 9y agoThere is also the increased cost of getting this merchandise to an area that is in shortage. If the roads are in disrepair, or there is flooding, it's gonna cost more to stock it. I have a feeling that not all increased prices are gouging... a lot of it is just that people don't want to have to pay more when crisis strikes. But preparedness counts in a situation like this. Waiting until the day before landfall to go and stock up is just plain idiotic. People need to think and plan ahead. If things cost more when you do it - you probably just waited too damn long to get your supplies.
- Taek 9y agoPrice gouging incentivizes creative and extreme tactics to increase the supply of a scarce good. And even when supply is inherently fixed, it at the very least gives you a clean way (even if it's not necessarily fair or good) to figure out who gets the last 10 bottles of water. But, if we're selling bottled water at $99 per crate, I can do all sorts of crazy things to bring in water. I can convince my friends to take a week of their vacation to help me figure out how to get an extra 10,000 crates of water to the disaster area for a cool million bucks. And then we've got a fat budget to rent boats, off-road vehicles, even helicopters to bring in crates of water. At $99 per crate, I can think of a lot of absurd supply chain tactics that are actually economical with that kind of revenue. If you create a law that bans me from selling water for $99, I'm not going to be able to do any of that. Not only am I no longer incentivized to drop everything and spend a week organizing a water supply chain, even if I was incentivized I don't have the kind of budget I need to get water bottles into a city that's underwater. If people are willing to pay that much for gas, water, plane tickets, it means they really need it, and that you can do some funky and extreme things to increase the supply while still being fully profitable.
- josefresco 9y agoIf people are willing to pay that much for gas, water, plane tickets, it means they really need it Uhhhhh no. It means those people can afford it, nothing else. Your personal wealth has nothing to do with your need.
- jstanley 9y agoWhat part of his argument do you think is wrong? He's absolutely correct. If highly-demanded goods become expensive, that incentivises creative behaviour to supply more of those goods. That's a good thing. If you're not allowed to charge fair market value, that won't make everything magically cheaper, it'll just mean there's not enough to go around.
- TaylorAlexander 9y agoWe could choose to go to extraordinary efforts to give these people what they need without seeking monetary compensation. The analysis lacks empathy. Also parent is saying ability to pay doesn't correlate well to need. Many people need plane tickets or water who can't afford sky high prices.
- TekMol 9y agoI think that as a society, we have learned that a market works best if it is free. If we think there should be cheaper flights, then that is a service that we should provide via means of the government.
- colechristensen 9y agoAmerica has _never_ had a free market. This is doubly true for airlines.
- zo1 9y agoIf price-increases are allowed during severe shortages, then people would make a business of "pre-stocking" disaster-prone areas so that there is enough to satisfy this increased demand (at even reasonable prices, not extreme ones). Sounds like a perfectly reasonable business model. But pre-stocking, specifically the long-term storage of supplies (as most preppers will probably note), is costly. At that point, it's not price gauging, just simply the cost that that person/business spent trying to store the supplies in preparation for the natural disaster. Heck, it might even be something that certain businesses can can incorporate into their existing warehousing/storage facilities. But that won't happen unless they're allowed to charge normal rates during normal periods, and increased ones during shortages. Because they'll simply go out of business, being the shop that sells the "priciest" fuel and water. But, to be honest, this really should be the responsibility of the government (while it claims to protect us). Price-gauging would then not even be an issue, because the government should be pre-stocking disaster-prone areas already. I think that's who I'll reserve my moral indignation for, and not the price-"gaugers".
- JustSomeNobody 9y agoAnd yet, JetBlue capped their rates out of Florida at $99.00. Not sure if they fly out of South Florida or not, but that is certainly a wonderful gesture on their part.
- jedberg 9y agoAt the end of the day this is a failing of the government (both State and Federal). We have a Federal oil reserve. The government bears the cost of storing it (and in turn all taxpayers bear a small cost) so that when something happens and we need oil, we have it. The state of Florida should have a bottled water and canned goods reserve. They (and their taxpayers) should bear the cost of storing those goods so they are available for a disaster. Then there wouldn't be price gouging. You could do the same with planes. They could store planes for times of emergency, or they could repurpose military transports or at the very least they could let the airlines set demand based prices and then subsidize people's purchases based on income and need, so that the airlines are incentivized to send more planes, but everyone can still get out. If you believe that the government is the ultimate collective risk pool then it makes sense for it to act like one.
- qubex 9y agoI see people advocating the implementation of quantity controls as a means to control hoarding as if those words had some intrinsic magical merit. Think about it carefully for a moment and you will realise there is no actual way for a single monopolistic store (let alone competitive stores, plural) to fairly ration something in who supply. Is the rule one per person? What if I go back to the store N times? What if I have kids or aged parents that cannot come to the store themselves? What if I buy a few per store? Is it even fair to preclude these courses of action?
- lemonycracket 9y agoThis seems reasonable. Or would you recommend that the airlines lower their prices to $1 and then let homeless people fly away while the rest of us are stuck?
- wang_li 9y agoWhy does everyone making these analysis ignore the context and the choices leading up to the moment in question? Hurricanes are not stealthy, there are multiple day's warning before they make any kind of landfall. One person gave up something in the days prior to the hurricane so that they could have sufficient supplies to last out the event. Another person didn't make the same choice, and now it's being deemed unfair and unjust that the second person has to do without or pay a premium for their decision.
- inanutshellus 9y agoAnother reason "gouging" has good side effects (including incentivizing companies to rush more flights down there ASAP, driving down "gouging" prices) is that it helps stop hoarding of scarce resources: http://money.cnn.com/2017/09/07/news/economy/gas-shortages-florida-irma/index.html http://money.cnn.com/2017/09/07/news/economy/gas-shortages-f... ^-- Here, Floridians aren't "gouged" for gas, so they stock up on more than they need "just in case", leaving the pumps empty and leaving companies with little incentive to rush their workers down w/ more gas. I mean, do you want to drive a gas truck to Florida right now?
- Unko999 9y agoIf you are defending this in any capacity, please for the betterment of society, KILL YOURSELF.
- Unko999 9y agoIf you are defending this in any capacity, please for the betterment of society, END YOUR LIFE.
- Unko999 9y agoIf you are defending this in any capacity, please for the betterment of society, experiment with orally ingesting rat poison.