7 ms·

Price 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

by Taek 9y ago

Price 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 ago
If 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 ago
  What 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 ago
    We 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.
    - sbenitoj 9y ago
      Why should those who CAN afford to pay the higher prices be discriminated against by fixing prices and creating shortages so that it's first-come-first-serve instead of the supply being sold to the highest bidder? Fixing supply only creates shortages, you can't repeal the laws of supply and demand.
      - frgtpsswrdlame 9y ago
        >Why should those who CAN afford to pay the higher prices be discriminated against by fixing prices and creating shortages so that it's first-come-first-serve instead of the supply being sold to the highest bidder? Look up discrimination, you're abusing the word. For example why should those who are poor but live close to the store be discriminated against by price gouging? Under first-come-first serve there would be no shortage for them. Also wealth is not a moral virtue and the wealthy don't deserve to survive disasters any more than the poor.
        sbenitoj 9y ago
        So why not create an organization that voluntarily creates the outcome you desire, why do you have to use coercion to solve the problem?
        frgtpsswrdlame 9y ago
        Markets are coercive.
- morgtheborg 9y ago
  Many people who could afford something won't buy it unless it's in a range they consider reasonable...or they need it. The market for airplane seats at that price going that distance is usually zero. But given the disaster, the market grows quite a bit. Not because they "can afford it", they could afford it before, but because they need it.
- Veelox 9y ago
  > 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. I think op makes a point that it isn't necessarily fair or good but that it is effective way to get more scarce goods to people.
mfringel 9y ago
Theoretically, you're completely correct.
michaelt 9y ago
But, if we're selling bottled water at $99 per crate, I can do all sorts of crazy things to bring in water. Did you, or anyone else profitably do this at scale? If so I'd be fascinated to hear about it!
- njarboe 9y ago
  Seems unlikely. Say a hedge fund calculated out that they could get a 20% return by buying warehouses throughout the hurricane belt and filled them with bottled water to sell at a huge mark-up (price gouging) during a disaster. Seems like more people would get the water they needed, if this happened, but it seems unlikely that the hedge fund would not be prosecuted for something after the public outrage at their actions. I think having people default reaction to rare events of scarcity to be sharing any surplus, instead of grabbing all they can get, is a good one. Try to encourage a more rational but complicated reaction is unlikely to be successful. Who can know in such a complex system of millions of people and a disaster the best way to minimize harm. If everyone just stored a 5 gallon jug ($20 for a really nice one at Home Depot) of water for each person in their home, that would go a huge way to preventing dehydration during these disasters.
oelmekki 9y ago
I often hear this argument, but if it was fact, wouldn't it prevent the price to get very high? As new merchants start selling, they would fight by offering lower price than competitors down to the rate they feel is still worth the business (supposedly still way higher than usual price). It seems to me that those things happen so fast, nobody has time to settle a new trade route and local businesses are the only ones to profit from it, with no side effect. I guess this argument would be right if we were talking about long term situation.
TaylorAlexander 9y ago
While I don't disagree with your analysis, I think it misses something important. There are people - living, breathing people - who are experiencing trauma and danger and who are starving and thirsty. We could choose to spend our own money on gasoline to drive down and distribute water. We do not need to seek compensation for everything we do. We can choose to lose money to help people who are in need. And I think charging $99 for a crate of clean water is adding insult to injury to people who have lost their livelihood. The calculus of your argument is correct but it lacks empathy.
- deleted 9y ago
  [deleted]
- beaner 9y ago
  Raising prices economizes scarce resources. It ensures that one family doesn't buy all the water in the store for themselves, and that there is more for others. If it's an emergency then the high price is worth it. If the price is too high to be bought, the seller can't sell anything. The price finds an equilibrium which is useful, not harmful. If you want to help, send the victims money afterwards.
  - frgtpsswrdlame 9y ago
    >If the price is too high to be bought, the seller can't sell anything. This is the trick in your sentence. We're talking about aggregate demand and aggregate supply but at the individual level there is certainly the possibility that the price is too high for someone to buy. Here's the problem, economic utility cannot be a moral guide in this situation, look at this example: (1) Water is normal price but with a limit per customer or lottery. (2) Water is very expensive and the richest person or people in town buy a lot and hoard it. #2 generates a lot more economic utility, but we can all agree that it's not an optimal situation here.
  - shepardrtc 9y ago
    It also ensures that poor people can't afford it. For many, even normal prices can be difficult to afford.
frgtpsswrdlame 9y ago
>Price 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. If we're willing to discard fair and good there are plenty of "clean" ways to distribute water that aren't gouging. >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. Good. Listen markets work in certain situations but maybe it's time we stop trying to marketize everything. Disasters are not your business opportunity. This is firmly in the government's realm and we should ask government to do more. If our social contract is a kind of insurance on the harshness of nature then it's hard to see a situation more deserving of government intervention than a natural disaster. This is the exact same problem we have with healthcare: find a market where people need your product to live, push that price up as high as you can. Charging the needy $100 for water is sick and reminds me of a Galbraith quote, namely that you are: engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.
- sbenitoj 9y ago
  Just because you don't like how markets work doesn't mean a market failure has occurred. If you would like goods to sell at lower prices during times of crisis, you are free to start stockpiling them now (or convincing others to do so) and selling them the next time a crisis arises. We don't need to bring coercion (AKA govt) into the equation, you can meet your own needs for creating a world that seems "fair" to you without resorting to violence.
  - frgtpsswrdlame 9y ago
    I'm not denying how markets work... I'm denying that we should rely on them in a crisis like this. >We don't need to bring coercion (AKA govt) into the equation, you can meet your own needs for creating a world that seems "fair" to you without resorting to violence. Oh put the talking points away. Why don't you go ask some disaster survivors which is more violent: $100 for water sold privately by a gouger or government provided water? This is exactly the situation that government is created for.
sbenitoj 9y ago
THIS. No law can ever repeal the laws of supply and demand, demand increases MASSIVELY during times of crisis, the result is prices must increase until supply increases or demand decreases again. The alternative scenario that anti-gouging laws attempt to realize is for sellers to keep the cost of goods (now in high demand) the same, meaning they will quickly run out and shortages will arise, leaving those willing to pay higher prices unable to purchase goods. Also, from a practical standpoint, if businesses are forced to keep prices the same, nothing stops people from buying up all the (now in high demand) goods and reselling them at a (much higher) current market price.
- closeparen 9y ago
  Fundamentally, a lot of people think it's okay/desirable for some to be deprived of a scarce resource because they lost a government lottery, but not okay when they're deprived of it because they can't afford it. If your moral framework views "deprived by the government's fair/random centrally planned allocation" and "deprived by the market's prices" as roughly equivalent, then you won't have a lot of common ground with those people. It's the same in urban housing. Some want to minimize deprivation, others only want to distribute it more evenly across the socioeconomic spectrum.
  - sbenitoj 9y ago
    I fundamentally disagree with the use of all forms of coercion unless its in self-defense.
sirbranedamuj 9y ago
I would love to see an example of people using their price-gouging-acquired wealth to create a disaster relief supply chain. And that's only half sarcasm - if there are examples of people doing this and it's being reported on, I think it would be fascinating to read about. But something tells me real-life examples of this will be difficult to find. In what reality do you think some random person on the side of the road is price gouging water bottles in order to fund an efficient supply chain to deliver bottles of water to the needy in the affected disaster area? In what reality do you think this person isn't just pocketing the cash or using it to fund their own escape or reconstruction efforts?
- kemitche 9y ago
  There was that article about the guy who loaded up a truck of generators and brought them to a disaster area where they were needed. He got caught by gouging laws, the generators were confiscated and never distributed.
- neurotech1 9y ago
  Back of the envelope math says helicopter transported gas shouldn't cost $20/Gallon! A small turbine helicopter costs less than $1000/Hr to fly and could effectively transport gas/diesel/kerosene into difficult to access parts of Houston.
foxyv 9y ago
This is right on many levels however there are major exceptions. The problem often isn't that the goods are not available in a disaster area so much as that the people on the ground are poorly informed where to find relief and how to prepare. Also it encourages situations similar to ticket scalping, where an adequate but limited supply is bought up by a small group of profiteers before a disaster and re-sold at high prices. In the case of the airlines it is likely that the situation you are proposing is happening. Airlines diverting planes and running them empty to provide more available and higher cost transportation to evacuees. However the free market CAN encourage some truly amoral and economically inefficient behavior in edge cases like natural disasters.
pasquinelli 9y ago
the only reason that kind of price gouging is possible is because you have the law on your side. since that business plan owes its feasibility to civil society, you owe it to civil society to not gouge. cover your costs, make a fair profit, and otherwise be glad you don't have to pay for the muscle needed to keep you from getting strung up.
neurotech1 9y ago
Price gouging [0] is when the price is excessively raised to profit from a disaster. Including the reasonable cost of special transportation required (off-road vehicle, helicopter etc.) after a disaster is not considered price gouging. By one estimate, helicopter transported gasoline "cost" around $8/Gallon to get it into difficult to access parts of Houston. Charging $20/Gal would be considered price gouging. A small Helicopter (Bell 206L4 Longranger) could handle a 200 Gallon cargo tank, and costs under $1000/Hr to fly. I'd have to run the numbers but the ballpark figures make sense. [0] https://en.wikipedia.org/wiki/Price_gouging#Laws_against_price_gouging https://en.wikipedia.org/wiki/Price_gouging#Laws_against_pri...
Spooky23 9y ago
You're a good capitalist I guess. Hopefully after making your million bucks ripping off desperate people you can sleep at night. The reality is that profiteering in a short term crisis is just a scummy thing to do. In the majority of cases basic supply services will be available in days anyway.

by Taek 9y ago

josefresco 9y ago

If 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 ago
What 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 ago
  We 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.
  - sbenitoj 9y ago
    Why should those who CAN afford to pay the higher prices be discriminated against by fixing prices and creating shortages so that it's first-come-first-serve instead of the supply being sold to the highest bidder? Fixing supply only creates shortages, you can't repeal the laws of supply and demand.
    - frgtpsswrdlame 9y ago
      >Why should those who CAN afford to pay the higher prices be discriminated against by fixing prices and creating shortages so that it's first-come-first-serve instead of the supply being sold to the highest bidder? Look up discrimination, you're abusing the word. For example why should those who are poor but live close to the store be discriminated against by price gouging? Under first-come-first serve there would be no shortage for them. Also wealth is not a moral virtue and the wealthy don't deserve to survive disasters any more than the poor.
      - sbenitoj 9y ago
        So why not create an organization that voluntarily creates the outcome you desire, why do you have to use coercion to solve the problem?
        frgtpsswrdlame 9y ago
        Markets are coercive.
morgtheborg 9y ago
Many people who could afford something won't buy it unless it's in a range they consider reasonable...or they need it. The market for airplane seats at that price going that distance is usually zero. But given the disaster, the market grows quite a bit. Not because they "can afford it", they could afford it before, but because they need it.
Veelox 9y ago
> 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. I think op makes a point that it isn't necessarily fair or good but that it is effective way to get more scarce goods to people.

mfringel 9y ago

Theoretically, you're completely correct.

michaelt 9y ago

But, if we're selling bottled water at $99 per crate, I can do all sorts of crazy things to bring in water. Did you, or anyone else profitably do this at scale? If so I'd be fascinated to hear about it!

njarboe 9y ago
Seems unlikely. Say a hedge fund calculated out that they could get a 20% return by buying warehouses throughout the hurricane belt and filled them with bottled water to sell at a huge mark-up (price gouging) during a disaster. Seems like more people would get the water they needed, if this happened, but it seems unlikely that the hedge fund would not be prosecuted for something after the public outrage at their actions. I think having people default reaction to rare events of scarcity to be sharing any surplus, instead of grabbing all they can get, is a good one. Try to encourage a more rational but complicated reaction is unlikely to be successful. Who can know in such a complex system of millions of people and a disaster the best way to minimize harm. If everyone just stored a 5 gallon jug ($20 for a really nice one at Home Depot) of water for each person in their home, that would go a huge way to preventing dehydration during these disasters.

oelmekki 9y ago

I often hear this argument, but if it was fact, wouldn't it prevent the price to get very high? As new merchants start selling, they would fight by offering lower price than competitors down to the rate they feel is still worth the business (supposedly still way higher than usual price). It seems to me that those things happen so fast, nobody has time to settle a new trade route and local businesses are the only ones to profit from it, with no side effect. I guess this argument would be right if we were talking about long term situation.

TaylorAlexander 9y ago

While I don't disagree with your analysis, I think it misses something important. There are people - living, breathing people - who are experiencing trauma and danger and who are starving and thirsty. We could choose to spend our own money on gasoline to drive down and distribute water. We do not need to seek compensation for everything we do. We can choose to lose money to help people who are in need. And I think charging $99 for a crate of clean water is adding insult to injury to people who have lost their livelihood. The calculus of your argument is correct but it lacks empathy.

deleted 9y ago
[deleted]
beaner 9y ago
Raising prices economizes scarce resources. It ensures that one family doesn't buy all the water in the store for themselves, and that there is more for others. If it's an emergency then the high price is worth it. If the price is too high to be bought, the seller can't sell anything. The price finds an equilibrium which is useful, not harmful. If you want to help, send the victims money afterwards.
- frgtpsswrdlame 9y ago
  >If the price is too high to be bought, the seller can't sell anything. This is the trick in your sentence. We're talking about aggregate demand and aggregate supply but at the individual level there is certainly the possibility that the price is too high for someone to buy. Here's the problem, economic utility cannot be a moral guide in this situation, look at this example: (1) Water is normal price but with a limit per customer or lottery. (2) Water is very expensive and the richest person or people in town buy a lot and hoard it. #2 generates a lot more economic utility, but we can all agree that it's not an optimal situation here.
- shepardrtc 9y ago
  It also ensures that poor people can't afford it. For many, even normal prices can be difficult to afford.

frgtpsswrdlame 9y ago

>Price 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. If we're willing to discard fair and good there are plenty of "clean" ways to distribute water that aren't gouging. >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. Good. Listen markets work in certain situations but maybe it's time we stop trying to marketize everything. Disasters are not your business opportunity. This is firmly in the government's realm and we should ask government to do more. If our social contract is a kind of insurance on the harshness of nature then it's hard to see a situation more deserving of government intervention than a natural disaster. This is the exact same problem we have with healthcare: find a market where people need your product to live, push that price up as high as you can. Charging the needy $100 for water is sick and reminds me of a Galbraith quote, namely that you are: engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.

sbenitoj 9y ago
Just because you don't like how markets work doesn't mean a market failure has occurred. If you would like goods to sell at lower prices during times of crisis, you are free to start stockpiling them now (or convincing others to do so) and selling them the next time a crisis arises. We don't need to bring coercion (AKA govt) into the equation, you can meet your own needs for creating a world that seems "fair" to you without resorting to violence.
- frgtpsswrdlame 9y ago
  I'm not denying how markets work... I'm denying that we should rely on them in a crisis like this. >We don't need to bring coercion (AKA govt) into the equation, you can meet your own needs for creating a world that seems "fair" to you without resorting to violence. Oh put the talking points away. Why don't you go ask some disaster survivors which is more violent: $100 for water sold privately by a gouger or government provided water? This is exactly the situation that government is created for.

sbenitoj 9y ago

THIS. No law can ever repeal the laws of supply and demand, demand increases MASSIVELY during times of crisis, the result is prices must increase until supply increases or demand decreases again. The alternative scenario that anti-gouging laws attempt to realize is for sellers to keep the cost of goods (now in high demand) the same, meaning they will quickly run out and shortages will arise, leaving those willing to pay higher prices unable to purchase goods. Also, from a practical standpoint, if businesses are forced to keep prices the same, nothing stops people from buying up all the (now in high demand) goods and reselling them at a (much higher) current market price.

closeparen 9y ago
Fundamentally, a lot of people think it's okay/desirable for some to be deprived of a scarce resource because they lost a government lottery, but not okay when they're deprived of it because they can't afford it. If your moral framework views "deprived by the government's fair/random centrally planned allocation" and "deprived by the market's prices" as roughly equivalent, then you won't have a lot of common ground with those people. It's the same in urban housing. Some want to minimize deprivation, others only want to distribute it more evenly across the socioeconomic spectrum.
- sbenitoj 9y ago
  I fundamentally disagree with the use of all forms of coercion unless its in self-defense.

sirbranedamuj 9y ago

I would love to see an example of people using their price-gouging-acquired wealth to create a disaster relief supply chain. And that's only half sarcasm - if there are examples of people doing this and it's being reported on, I think it would be fascinating to read about. But something tells me real-life examples of this will be difficult to find. In what reality do you think some random person on the side of the road is price gouging water bottles in order to fund an efficient supply chain to deliver bottles of water to the needy in the affected disaster area? In what reality do you think this person isn't just pocketing the cash or using it to fund their own escape or reconstruction efforts?

kemitche 9y ago
There was that article about the guy who loaded up a truck of generators and brought them to a disaster area where they were needed. He got caught by gouging laws, the generators were confiscated and never distributed.
neurotech1 9y ago
Back of the envelope math says helicopter transported gas shouldn't cost $20/Gallon! A small turbine helicopter costs less than $1000/Hr to fly and could effectively transport gas/diesel/kerosene into difficult to access parts of Houston.

foxyv 9y ago

This is right on many levels however there are major exceptions. The problem often isn't that the goods are not available in a disaster area so much as that the people on the ground are poorly informed where to find relief and how to prepare. Also it encourages situations similar to ticket scalping, where an adequate but limited supply is bought up by a small group of profiteers before a disaster and re-sold at high prices. In the case of the airlines it is likely that the situation you are proposing is happening. Airlines diverting planes and running them empty to provide more available and higher cost transportation to evacuees. However the free market CAN encourage some truly amoral and economically inefficient behavior in edge cases like natural disasters.

pasquinelli 9y ago

the only reason that kind of price gouging is possible is because you have the law on your side. since that business plan owes its feasibility to civil society, you owe it to civil society to not gouge. cover your costs, make a fair profit, and otherwise be glad you don't have to pay for the muscle needed to keep you from getting strung up.

neurotech1 9y ago

Price gouging [0] is when the price is excessively raised to profit from a disaster. Including the reasonable cost of special transportation required (off-road vehicle, helicopter etc.) after a disaster is not considered price gouging. By one estimate, helicopter transported gasoline "cost" around $8/Gallon to get it into difficult to access parts of Houston. Charging $20/Gal would be considered price gouging. A small Helicopter (Bell 206L4 Longranger) could handle a 200 Gallon cargo tank, and costs under $1000/Hr to fly. I'd have to run the numbers but the ballpark figures make sense. [0] https://en.wikipedia.org/wiki/Price_gouging#Laws_against_price_gouging https://en.wikipedia.org/wiki/Price_gouging#Laws_against_pri...

Spooky23 9y ago

You're a good capitalist I guess. Hopefully after making your million bucks ripping off desperate people you can sleep at night. The reality is that profiteering in a short term crisis is just a scummy thing to do. In the majority of cases basic supply services will be available in days anyway.