4 ms·

That's true only if you can readily bring in new supply to compete with existing suppliers. But if market entry is difficult or impossible--on an island and una

by wahern 8y ago

That's true only if you can readily bring in new supply to compete with existing suppliers. But if market entry is difficult or impossible--on an island and unable to quickly arrange transport--then no price is sufficient to bring new supply to bear on the market. Price gouging in this context might imply existing suppliers with more than enough supply to keep water at affordable rates until new supply comes online, but who choose to charge exorbitant prices simply because they can. Or more realistically, they charge just below the price at which outside suppliers could profitably enter the market given the temporarily enormous transaction costs (e.g. transport) in emergency situations. Furthermore, when discussing essentials such as water, society cannot tolerate a system that explicitly puts people into conflict. Maintenance of law & order requires a minimal degree of equal treatment regardless of circumstance as part of the social contract. And while we can argue that a $100 bottle of water might help to ensure that, e.g., only the severely sick receive water because, facing imminent death, they or someone close them is willing to pay the price, often the price may far exceed what the impoverished are capable of affording, no matter how they value it. Again, maintenance of the social contract--incentivizing the impoverished not to begin violating property rights--is often a collective action problem and not something free markets can ensure. I agree that people use "price gouging" far too liberally and don't appreciate how price signaling works to moderate supply and demand, but there are situations where free markets cannot adequately serve a population.

tfha 8y ago
SUV perhaps wasn't the best example, because SUVs often can't get to places that need water - if they could, SUVs would be bringing water to that place. At a $100 water bottle price though, I can literally afford to use a helicopter to bring in water. At $20 per water bottle, I'm not sure I could afford to use a helicopter to bring water in, especially if I have to use hours of fuel in each direction. I agree that you have to keep order. People who think their life is at risk will get violent and reckelss, and we need to limit that. But if you hit a point where water is worth $100, you are probably already past the point of keeping order.
sokoloff 8y ago
Even if you can't quickly bring new supply into a market, allowing prices to rise to reflect the new supply/demand equilibrium prevents (or dramatically reduces hoarding). No one goes to a ballgame to stock up on $5 bottles of water... Force retailers to keep bottles of water at $0.50/bottle and the sensible thing to do post-disaster if the water supply is uncertain is to buy all of them. In the worst case, you bought something at a normal price that won't spoil essentially ever. In a not unexpected case, you have secured a supply of water for yourself and family and have something that may be barter-able for other supplies that you might need.
- Faark 8y ago
  Congratulation, you just noticed obvious problems of a rule like "don't change prices at state of emergencies". Thus, no reasonable/battle-tested actual regulation will have such a rule. Surprisingly, simple principles like "free market", "planned economy"/"communism", "free speech", "equal opportunity" etc cannot solve every problem on their own and we tediously need to balance all of those tools for the best possible outcomes for society. Here a compromise might be something like caps on price increases (maybe max 500%) and some mild rules to prevent hoarding. I remember reading something like that in actual law, but it's been a while and I'm not sure about details anymore. It's also interesting many forms of disaster relief are provided by the governments or non-profits instead by the free market directly. This development seems like a good indicator that free markets might have significant drawbacks in such situations.
  - sokoloff 8y ago
    And yet, you have people like the AG of Texas threatening to investigate any business who raised prices by more than 10%. Actually happened; not theoretical. See the quote from the Texas AG in the article here: https://abcnews.go.com/US/texas-attorney-general-warns-price-gouging-aftermath-harvey/story?id=49503480 https://abcnews.go.com/US/texas-attorney-general-warns-price...
    - wahern 8y ago
      Interesting. FWIW, the pertinent law in Texas is recited at https://www.texasattorneygeneral.gov/consumer-protection/disaster-and-emergency-scams/how-spot-and-report-price-gouging https://www.texasattorneygeneral.gov/consumer-protection/dis... [Illegal to sell] fuel, food, medicine or another necessity at an exorbitant or excessive price The only thing that might be worse than leaving the standard so open-ended is actually specifying hard numbers.[1] I wonder what the caselaw looks like, and what are some actual price multipliers involved in successful and failed prosecutions. [1] Sometimes vague standards like that are deliberately designed to incentive conservative behavior while permitting equitable treatment (give defendant benefit of a doubt) in actual disputes. Being scared you could easily run afoul of the law is partly the point. That works better when designed for enforcement by private plaintiffs where quantifiable harm must plausibly have occurred. It's prone to abuse when enforced by regulators preemptively as there's no limiting factor of manifest harm. If everybody was happy to pay $50, no harm no foul. If somebody's grandmother passed out from dehydration because she couldn't afford a bottle even though the shelves were full, then not only do we have harm but we have a concrete context to gauge "excessive". Preemptive enforcement lacks these contextualizing facts.
geezerjay 8y ago
You're missing the fact that under a scenario where supply is restricted, increasing prices also discourages those who already supplied themselves from exausting the supply. I mean, if water is 0.10€/bottle then I'll gladly buy the whole supply with my pockey change just to avoid any chance I might feel slightly peckish. How does price-fixing solve that problem? However if the same bottle is sold for 1€ or 10€ then I'll think twice before pulling out the bottle, and I might even open a stand to sell part of my provisions for less to undercut the competition.

by wahern 8y ago

tfha 8y ago

SUV perhaps wasn't the best example, because SUVs often can't get to places that need water - if they could, SUVs would be bringing water to that place. At a $100 water bottle price though, I can literally afford to use a helicopter to bring in water. At $20 per water bottle, I'm not sure I could afford to use a helicopter to bring water in, especially if I have to use hours of fuel in each direction. I agree that you have to keep order. People who think their life is at risk will get violent and reckelss, and we need to limit that. But if you hit a point where water is worth $100, you are probably already past the point of keeping order.

sokoloff 8y ago

Even if you can't quickly bring new supply into a market, allowing prices to rise to reflect the new supply/demand equilibrium prevents (or dramatically reduces hoarding). No one goes to a ballgame to stock up on $5 bottles of water... Force retailers to keep bottles of water at $0.50/bottle and the sensible thing to do post-disaster if the water supply is uncertain is to buy all of them. In the worst case, you bought something at a normal price that won't spoil essentially ever. In a not unexpected case, you have secured a supply of water for yourself and family and have something that may be barter-able for other supplies that you might need.

Faark 8y ago
Congratulation, you just noticed obvious problems of a rule like "don't change prices at state of emergencies". Thus, no reasonable/battle-tested actual regulation will have such a rule. Surprisingly, simple principles like "free market", "planned economy"/"communism", "free speech", "equal opportunity" etc cannot solve every problem on their own and we tediously need to balance all of those tools for the best possible outcomes for society. Here a compromise might be something like caps on price increases (maybe max 500%) and some mild rules to prevent hoarding. I remember reading something like that in actual law, but it's been a while and I'm not sure about details anymore. It's also interesting many forms of disaster relief are provided by the governments or non-profits instead by the free market directly. This development seems like a good indicator that free markets might have significant drawbacks in such situations.
- sokoloff 8y ago
  And yet, you have people like the AG of Texas threatening to investigate any business who raised prices by more than 10%. Actually happened; not theoretical. See the quote from the Texas AG in the article here: https://abcnews.go.com/US/texas-attorney-general-warns-price-gouging-aftermath-harvey/story?id=49503480 https://abcnews.go.com/US/texas-attorney-general-warns-price...
  - wahern 8y ago
    Interesting. FWIW, the pertinent law in Texas is recited at https://www.texasattorneygeneral.gov/consumer-protection/disaster-and-emergency-scams/how-spot-and-report-price-gouging https://www.texasattorneygeneral.gov/consumer-protection/dis... [Illegal to sell] fuel, food, medicine or another necessity at an exorbitant or excessive price The only thing that might be worse than leaving the standard so open-ended is actually specifying hard numbers.[1] I wonder what the caselaw looks like, and what are some actual price multipliers involved in successful and failed prosecutions. [1] Sometimes vague standards like that are deliberately designed to incentive conservative behavior while permitting equitable treatment (give defendant benefit of a doubt) in actual disputes. Being scared you could easily run afoul of the law is partly the point. That works better when designed for enforcement by private plaintiffs where quantifiable harm must plausibly have occurred. It's prone to abuse when enforced by regulators preemptively as there's no limiting factor of manifest harm. If everybody was happy to pay $50, no harm no foul. If somebody's grandmother passed out from dehydration because she couldn't afford a bottle even though the shelves were full, then not only do we have harm but we have a concrete context to gauge "excessive". Preemptive enforcement lacks these contextualizing facts.

geezerjay 8y ago

You're missing the fact that under a scenario where supply is restricted, increasing prices also discourages those who already supplied themselves from exausting the supply. I mean, if water is 0.10€/bottle then I'll gladly buy the whole supply with my pockey change just to avoid any chance I might feel slightly peckish. How does price-fixing solve that problem? However if the same bottle is sold for 1€ or 10€ then I'll think twice before pulling out the bottle, and I might even open a stand to sell part of my provisions for less to undercut the competition.