8 ms·

So they jacked up the prices from high (few people can buy) to infinity (nobody can buy). How's that a good thing?

platz 7y ago
These kinds of prices (gouging) are not at an idealized equilibrium. They don't reflect the true supply. They're just predatory on people who have incomplete information.
- H8crilA 7y ago
  There is no supply. It's a supply-shock-like type of situation. There are not enough masks for all the people that want them, let alone all the people. You have to wait for new masks to be manufactured. And I wouldn't blame the Chinese if they halted the shipments with their equivalent of an Executive Order.
  - concerned_user 7y ago
    You are correct, in my country in europe only ones who wear masks are medical professionals and even then not all of them. Nobody wears one when they get cold or flu and still decide to go out. So in my country there is no buffer at all and I assume that people watched tv saw chinese wearing them and heard that china made it mandatory to wear when going out which led to panic buying of face masks. Because local press and tv say it doesn't protect a healthy person, which is true. I can see how it can be effective when every single person wears these masks outside, like china did, since it would prevent people without symptoms spreading disease as much, but in a situation when we can't supply everyone it is better to leave them for use by medical staff and people in need only.
- BurningFrog 7y ago
  Prices are exactly how information about supply and demand are transmitted to the market!!!
  - platz 7y ago
    Basic price theory only obtains under specific conditions like perfect competition, perfect information, fungibility of commodities, and zero friction for market entry and exit.
    - BurningFrog 7y ago
      That's a common misconception. Yes, the theory only applies perfectly under those conditions, but real world experience is that the theories are quite robust even when all of those "perfect" preconditions are far from perfect. This is what makes the theories so practically useful in the first place! Studying how and when the theories break down when "perfection" diminishes is a very interesting part of Economics.
threeseed 7y ago
Simple. People shouldn't profit from misery.
- gruez 7y ago
  Arms companies (aka defense contractors) profit from war, should they not exist? What about pharmaceutical companies that profit from sickness?
  - ip26 7y ago
    In practice it's more like they are expected not to profit excessively. See the $700 epipens & surrounding firestorm.
    - gruez 7y ago
      The two cases aren't really comparable. In the case of epipen, the price is high because manufacturer has a monopoly, and is using that monopoly to hike prices. With the masks, the prices are high purely because demand far outstrips supply. Those ebay sellers hardly have a monopoly, so I expect them to be priced close to the market clearing price, otherwise they'd be either be selling out (if below) or have zero sales (if above). In a perfect world, any profits would be redistributed back to society, but that's more of a taxation problem than a market one.
- 14 7y ago
  I wish this were true but instantly I think tobacco, alcohol and gambling. Also where do you draw the line? Should Walmart be able to charge so much to a struggling single mom who has to choose between eating herself and feeding her baby? There is no easy solutions to this but I ultimately think big corporations try and maximize their profits at any cost every single day and no one says Walmart or whoever sells these masks should sell them at cost.
  - ghaff 7y ago
    They probably sell them at a low percentage markup and you can be sure there would be an uproar if they suddenly jacked up prices 5x.
foogazi 7y ago
Disincentivizes people buying at brick & mortar and selling on eBay.
- H8crilA 7y ago
  If someone buys the increased price it obviously means they couldn't find it in brick and mortar. Also the world supply is short and no amount of lawmaking will materialize more masks. There's not enough masks for everyone and there won't be any time (very) soon, plain and simple. It takes a factory, not a lawmaker to increase the supply.
  - jbay808 7y ago
    They might not have been able to find it at the brick and mortar because their neighbour bought out all the stock to sell on eBay. Brick and mortar stores generally won't raise prices under these circumstances despite the scarcity, because it might create a long term negative reputation even if they can get a bit more profit in the short term. So there's an opportunity for arbitrage that eBay no longer facilitates.
    - DuskStar 7y ago
      Right - instead they just get a reputation for not having items in stock when you really need them.
      - npunt 7y ago
        I think you're missing the point - if there's a big arbitrage opportunity through price gouging, there will be even less stock in stores.
        DuskStar 7y ago
        No, my point is that if the stores raised prices they wouldn't be cleared out for arbitrage or hoarding. You seem to think it's possible to eliminate all resale markets, and thus eliminate the arbitrage opportunity. Ignoring the fact that hoarding would still exist, I would say such a thing is essentially impossible. Which makes the only way to eliminate the price difference (supply and demand curves held static) to have the store raise prices.
gotoeleven 7y ago
This thread: how the laws of economics and human nature don't apply in this situation.
- platz 7y ago
  I guess everyone truly is a bag of preferences navigated by pure reason and an unwavering drive to maximize their utility functions after all.
- gruez 7y ago
  Aright then, what is the reasonable thing to do here?
  - H8crilA 7y ago
    There isn't a reasonable thing to do. Why would you think there has to be? People want masks, there's not enough of them for everyone.
curiousgeorgio 7y ago
> So they jacked up the prices from high (few people can buy) to infinity (nobody can buy). If nobody can buy, the sellers don't sell any (and lose potential profits), so they'll be forced to sell for more reasonable prices. See - no heavy-handed intervention needed, and market prices naturally stabilize to a fair price accounting for what is available and how much of everything else a person is willing to sacrifice in return for the product of interest.
tgsovlerkhgsel 7y ago
They didn't jack the prices up, they introduced significant friction to the market. Which means the market for masks bought and sold by individuals is less efficient. This will likely leave more masks for pre-established supply chains, and reduce the incentive for people who aren't part of these supply chains to buy up (or steal!) masks for resale. These are almost all rent-seekers: They aren't going to make more masks, just obtain them wherever they can get them cheaply (e.g. by buying everything from a supermarket that hasn't jacked up prices nor introduced rationing, or from a thief) and resell them for a higher price. This also often happens in circumvention of existing laws against price-gouging.

These kinds of prices (gouging) are not at an idealized equilibrium. They don't reflect the true supply. They're just predatory on people who have incomplete information.

H8crilA 7y ago
There is no supply. It's a supply-shock-like type of situation. There are not enough masks for all the people that want them, let alone all the people. You have to wait for new masks to be manufactured. And I wouldn't blame the Chinese if they halted the shipments with their equivalent of an Executive Order.
- concerned_user 7y ago
  You are correct, in my country in europe only ones who wear masks are medical professionals and even then not all of them. Nobody wears one when they get cold or flu and still decide to go out. So in my country there is no buffer at all and I assume that people watched tv saw chinese wearing them and heard that china made it mandatory to wear when going out which led to panic buying of face masks. Because local press and tv say it doesn't protect a healthy person, which is true. I can see how it can be effective when every single person wears these masks outside, like china did, since it would prevent people without symptoms spreading disease as much, but in a situation when we can't supply everyone it is better to leave them for use by medical staff and people in need only.
BurningFrog 7y ago
Prices are exactly how information about supply and demand are transmitted to the market!!!
- platz 7y ago
  Basic price theory only obtains under specific conditions like perfect competition, perfect information, fungibility of commodities, and zero friction for market entry and exit.
  - BurningFrog 7y ago
    That's a common misconception. Yes, the theory only applies perfectly under those conditions, but real world experience is that the theories are quite robust even when all of those "perfect" preconditions are far from perfect. This is what makes the theories so practically useful in the first place! Studying how and when the theories break down when "perfection" diminishes is a very interesting part of Economics.

threeseed 7y ago

Simple. People shouldn't profit from misery.

gruez 7y ago
Arms companies (aka defense contractors) profit from war, should they not exist? What about pharmaceutical companies that profit from sickness?
- ip26 7y ago
  In practice it's more like they are expected not to profit excessively. See the $700 epipens & surrounding firestorm.
  - gruez 7y ago
    The two cases aren't really comparable. In the case of epipen, the price is high because manufacturer has a monopoly, and is using that monopoly to hike prices. With the masks, the prices are high purely because demand far outstrips supply. Those ebay sellers hardly have a monopoly, so I expect them to be priced close to the market clearing price, otherwise they'd be either be selling out (if below) or have zero sales (if above). In a perfect world, any profits would be redistributed back to society, but that's more of a taxation problem than a market one.
14 7y ago
I wish this were true but instantly I think tobacco, alcohol and gambling. Also where do you draw the line? Should Walmart be able to charge so much to a struggling single mom who has to choose between eating herself and feeding her baby? There is no easy solutions to this but I ultimately think big corporations try and maximize their profits at any cost every single day and no one says Walmart or whoever sells these masks should sell them at cost.
- ghaff 7y ago
  They probably sell them at a low percentage markup and you can be sure there would be an uproar if they suddenly jacked up prices 5x.

foogazi 7y ago

Disincentivizes people buying at brick & mortar and selling on eBay.

H8crilA 7y ago
If someone buys the increased price it obviously means they couldn't find it in brick and mortar. Also the world supply is short and no amount of lawmaking will materialize more masks. There's not enough masks for everyone and there won't be any time (very) soon, plain and simple. It takes a factory, not a lawmaker to increase the supply.
- jbay808 7y ago
  They might not have been able to find it at the brick and mortar because their neighbour bought out all the stock to sell on eBay. Brick and mortar stores generally won't raise prices under these circumstances despite the scarcity, because it might create a long term negative reputation even if they can get a bit more profit in the short term. So there's an opportunity for arbitrage that eBay no longer facilitates.
  - DuskStar 7y ago
    Right - instead they just get a reputation for not having items in stock when you really need them.
    - npunt 7y ago
      I think you're missing the point - if there's a big arbitrage opportunity through price gouging, there will be even less stock in stores.
      - DuskStar 7y ago
        No, my point is that if the stores raised prices they wouldn't be cleared out for arbitrage or hoarding. You seem to think it's possible to eliminate all resale markets, and thus eliminate the arbitrage opportunity. Ignoring the fact that hoarding would still exist, I would say such a thing is essentially impossible. Which makes the only way to eliminate the price difference (supply and demand curves held static) to have the store raise prices.

gotoeleven 7y ago

This thread: how the laws of economics and human nature don't apply in this situation.

platz 7y ago
I guess everyone truly is a bag of preferences navigated by pure reason and an unwavering drive to maximize their utility functions after all.
gruez 7y ago
Aright then, what is the reasonable thing to do here?
- H8crilA 7y ago
  There isn't a reasonable thing to do. Why would you think there has to be? People want masks, there's not enough of them for everyone.

curiousgeorgio 7y ago

> So they jacked up the prices from high (few people can buy) to infinity (nobody can buy). If nobody can buy, the sellers don't sell any (and lose potential profits), so they'll be forced to sell for more reasonable prices. See - no heavy-handed intervention needed, and market prices naturally stabilize to a fair price accounting for what is available and how much of everything else a person is willing to sacrifice in return for the product of interest.

tgsovlerkhgsel 7y ago

They didn't jack the prices up, they introduced significant friction to the market. Which means the market for masks bought and sold by individuals is less efficient. This will likely leave more masks for pre-established supply chains, and reduce the incentive for people who aren't part of these supply chains to buy up (or steal!) masks for resale. These are almost all rent-seekers: They aren't going to make more masks, just obtain them wherever they can get them cheaply (e.g. by buying everything from a supermarket that hasn't jacked up prices nor introduced rationing, or from a thief) and resell them for a higher price. This also often happens in circumvention of existing laws against price-gouging.