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An argument supporting gouging: https://reason.com/2019/01/31/price-gouging-is-supply-and-demand-at-wo/ https://reason.com/2019/01/31/price-gouging-is-supply-an

An argument supporting gouging: https://reason.com/2019/01/31/price-gouging-is-supply-and-demand-at-wo/ https://reason.com/2019/01/31/price-gouging-is-supply-and-de...

microcolonel 7y ago
The main pragmatic problem with anti-gouging laws (or even just anti-gouging policies within retailers) is that when manufacture and distribution are not supported on the back end to keep up, it leads to shortages (as can be seen at most grocers in the U.S. and Canada right now). My local Wal Mart closed yesterday because they were cleaned out.
herbstein 7y ago
Yes, that is an an argument. It's just not terribly convincing if you don't already subscribe to the idea that markets are always right, externalities be damned.
- baryphonic 7y ago
  What externalities?
  - yladiz 7y ago
    One example is a pandemic.
    - logicchains 7y ago
      The point is that capping the price of e.g. masks means _fewer masks_ are produced, which is worse for stopping the pandemic.
      - kharms 7y ago
        Price gouging laws typically apply at the consumer point of sale, I'm not sure they prevent a higher price from factory to store.
        waterhouse 7y ago
        If the law prevents the store from charging a high price to the consumer, then that effectively prevents the factory from charging a high price to the store, because the store would make a loss if it accepted that price.
        kharms 7y ago
        >>What if a seller increased the price of a good or service because the seller’s costs of providing the good or service increased? >If the seller can prove that the increased price is directly attributable to increases in the cost of labor or materials needed to provide the good or service, the seller may not be liable under the statute. It's right there on the linked page. This basically prohibits large markups while allowing for passing of costs.
    - baryphonic 7y ago
      I am intimately aware of exactly what constitutes an externality. I fail to see how this situation (two parties agreeing to a high price for a consumption good) has impacts on third parties. I'm not sure how "pandemic" applies, either.
    - dabbledash 7y ago
      How is that an externality?
  - deleted 7y ago
    [deleted]
- ZhuanXia 7y ago
  High prices induce production that would not have occurred otherwise. They also curve demand downwards so that only those who really want the item will get it. There is little reason to outlaw price gouging save for humans have a disgust response to people who profit from tragic events. Absent these laws, there would be incentive to create stockpiles of needed items before a disaster and retool less-efficient factories to produce now more-profitable items during a crisis. We do not think markets are magic. We think they are machines that run on price signals, and bashing these signals with hammers will degrade the efficiency of the machine.
  - karamanolev 7y ago
    I do agree with the inducing production part. Where this massively fails is the "only those who really want the item will get it". This is really "the wealthy can afford the item without batting an eye and the poor be damned". Not exactly a great idea for essential items.
    - gwright 7y ago
      It is not that. A higher price doesn't magically mean that rich people get it and poor people don't. Everyone will respond to that price signal and adjust their behavior. Everyone will also change their priorities. There seems to be this idea that there are millions upon millions of people who have a fixed budget and purchase plan that has no room for adjustment at all. I don't think that is true, it is a myth. And in any case, if the preferred policy of not letting prices float results in a completely empty shelf in the grocery store, please explain to me how the poor, middle class, or rich are going to purchase anything from that empty shelf?
  - deleted 7y ago
    [deleted]
  - mandelbrotwurst 7y ago
    > High prices induce production that would not have occurred otherwise. They also curve demand downwards so that only those who really want the item will get it. These are good points. > There is little reason to outlaw price gouging save for humans have a disgust response to people who profit from tragic events. There is at least one reason: Setting a price ceiling means that the distribution of the good will be tilted more towards those with less financial capital than it would be if the price were allowed to climb further. I believe this is a point that many care about for a number of reasons. I'm not arguing that it's better if you are optimizing solely for maximizing total utility received from the supply of the good, but I would question whether that is necessarily the right course of action.
sollewitt 7y ago
That's just poor reasoning on multiple levels: it assumes supply, the argument that it prevents hoarding misses that as prices are driven up the incentive to hold increases, and it overlooks that some populations night need the good immediately so real harm is being done. The gain is personal, the harm is social, this is ethics 101 and solipsistic pseudo-libertarion reasoning doesn't make it right.
- logicchains 7y ago
  >solipsistic pseudo-liberation reasoning Basic economics is solipsistic pseudo-liberation reasoning now?
  - hodgesrm 7y ago
    The argument that the threat of gouging increases the motivation to hoard is basic economics. For analogous reasons there is FDIC insurance on bank accounts because the alternative is runs on banks that can lead to system collapse. Not every point on the supply/demand curve is a good place to be.
    - logicchains 7y ago
      >The argument that the threat of gouging increases the motivation to hoard is basic economics. But the ability to increase price freely also decreases actual hoarding, because when stores see a massive increase in demand, they'll be incentivised to increase prices, which will deter unnecessary purchases.
      - hodgesrm 7y ago
        If your goal is to prevent hoarding and ensure there's enough for everyone, it's simpler just to limit the number of rolls each customer gets. Fewer corner cases.
    - waterhouse 7y ago
      Are people hoarding because they're worried about being gouged on the price, or because they're worried about being unable to buy at all? Are the viral social media posts "OMG look at these high prices", or "OMG look at these empty shelves"? From a hypothetical perspective, which scenario creates a stronger incentive to buy supplies now: "Prices might rise 10x in the next month, but buying will always be possible", or "The supply might run out completely in the next month"?
logicchains 7y ago
You'll find a similar argument in any basic econ textbook. Put a cap on prices, then when demand rises for something (which normally leads to an increase in price, all other things being equal), the lack of an accompanying rise in price means there is no incentive to produce more of the good (no incentive for more producers to enter the market), so there isn't a corresponding increase in supply. Might work okay in China, where the government can e.g. command factories to switch to producing masks, but it means American factory owners won't have any incentive to switch over to producing them.
- hobs 7y ago
  Do you actually think our economy needs 200x as much hand sanitizer production? If the demand runs high enough for long enough, it wont be an emergency, and emergency measures don't apply.
  - logicchains 7y ago
    >Do you actually think our economy needs 200x as much hand sanitizer production? Yes I do. If everybody is now sanitising their hands thoroughly and regularly throughout the day to prevent infection, this could easily be a 200x increase in hand sanitizer usage compared to what it was previously.
- wbl 7y ago
  The President does have the power to direct factories to make masks during a national emergency.
  - logicchains 7y ago
    That would be much more effective at increasing supply than price caps.
- XorNot 7y ago
  And like most things, basic econ is not the be all and end all of how the world works otherwise we wouldn't have those all-important second year econ classes. Price gouging is not an efficient market result for anyone - the goods aren't actually, in real terms, worth the temporary price (the costs of manufacturer's switching over production is going to wind up much higher then any profit they can make once they're tooled up) nor does their value represent efficient allocation of resources - the guy with 11,000 bottles of hand sanitizer has no use for them, outside of the extremely limited window of people panicking due to uncertainty. But really, whether anyone believes this can be viewed through a very different lens: multiple times in the past week, US exchanges have ceased trading due to automatic circuit breakers from 7% drops in the market. Surely if the market is all knowing we shouldn't trigger these mechanisms and instead just let the invisible perfect hand let people sell stocks freely. After all, if we don't allow sudden plunges, what incentive will there be for investors to properly allocate their risk in the future? But, no one's making that argument. Nor is anyone questioning why it was suddenly urgent that the government put $USD1.5 trillion of liquidity into the market.
djhworld 7y ago
> Higher prices are also a deterrent against hoarding, particularly in the days leading up to a disaster. To be on the safe side, many consumers are inclined to buy more than enough of whatever they think they'll need. The more expensive the propane is, the more is available for everyone else. I think this makes sense. It would definitely stop people like this guy [1] going out and cleaning all the local stores/rural stores and mom and pop outlets of cleaning supplies, then selling the stuff on for a huge profit... [1] https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html?utm_source=pocket&utm_medium=email&utm_campaign=pockethits https://www.nytimes.com/2020/03/14/technology/coronavirus-pu...
- sneak 7y ago
  If the stores are underpricing, why shouldn’t people who are paying more attention reap those profits instead? Someone’s going to get it. I’d rather it go to those paying attention and willing to put in the work to get it to where it is most needed.
maxerickson 7y ago
It'd likely be good business for Costco to keep prices where they have been and limit each customer to a certain amount. (I expect the goodwill would outweigh the costs and any "foregone" profit) Not imposed by the government, not socialism, just good business.

An argument supporting gouging: https://reason.com/2019/01/31/price-gouging-is-supply-and-demand-at-wo/ https://reason.com/2019/01/31/price-gouging-is-supply-and-de...

microcolonel 7y ago

The main pragmatic problem with anti-gouging laws (or even just anti-gouging policies within retailers) is that when manufacture and distribution are not supported on the back end to keep up, it leads to shortages (as can be seen at most grocers in the U.S. and Canada right now). My local Wal Mart closed yesterday because they were cleaned out.

herbstein 7y ago

Yes, that is an an argument. It's just not terribly convincing if you don't already subscribe to the idea that markets are always right, externalities be damned.

baryphonic 7y ago
What externalities?
- yladiz 7y ago
  One example is a pandemic.
  - logicchains 7y ago
    The point is that capping the price of e.g. masks means _fewer masks_ are produced, which is worse for stopping the pandemic.
    - kharms 7y ago
      Price gouging laws typically apply at the consumer point of sale, I'm not sure they prevent a higher price from factory to store.
      - waterhouse 7y ago
        If the law prevents the store from charging a high price to the consumer, then that effectively prevents the factory from charging a high price to the store, because the store would make a loss if it accepted that price.
        kharms 7y ago
        >>What if a seller increased the price of a good or service because the seller’s costs of providing the good or service increased? >If the seller can prove that the increased price is directly attributable to increases in the cost of labor or materials needed to provide the good or service, the seller may not be liable under the statute. It's right there on the linked page. This basically prohibits large markups while allowing for passing of costs.
  - baryphonic 7y ago
    I am intimately aware of exactly what constitutes an externality. I fail to see how this situation (two parties agreeing to a high price for a consumption good) has impacts on third parties. I'm not sure how "pandemic" applies, either.
  - dabbledash 7y ago
    How is that an externality?
- deleted 7y ago
  [deleted]
ZhuanXia 7y ago
High prices induce production that would not have occurred otherwise. They also curve demand downwards so that only those who really want the item will get it. There is little reason to outlaw price gouging save for humans have a disgust response to people who profit from tragic events. Absent these laws, there would be incentive to create stockpiles of needed items before a disaster and retool less-efficient factories to produce now more-profitable items during a crisis. We do not think markets are magic. We think they are machines that run on price signals, and bashing these signals with hammers will degrade the efficiency of the machine.
- karamanolev 7y ago
  I do agree with the inducing production part. Where this massively fails is the "only those who really want the item will get it". This is really "the wealthy can afford the item without batting an eye and the poor be damned". Not exactly a great idea for essential items.
  - gwright 7y ago
    It is not that. A higher price doesn't magically mean that rich people get it and poor people don't. Everyone will respond to that price signal and adjust their behavior. Everyone will also change their priorities. There seems to be this idea that there are millions upon millions of people who have a fixed budget and purchase plan that has no room for adjustment at all. I don't think that is true, it is a myth. And in any case, if the preferred policy of not letting prices float results in a completely empty shelf in the grocery store, please explain to me how the poor, middle class, or rich are going to purchase anything from that empty shelf?
- deleted 7y ago
  [deleted]
- mandelbrotwurst 7y ago
  > High prices induce production that would not have occurred otherwise. They also curve demand downwards so that only those who really want the item will get it. These are good points. > There is little reason to outlaw price gouging save for humans have a disgust response to people who profit from tragic events. There is at least one reason: Setting a price ceiling means that the distribution of the good will be tilted more towards those with less financial capital than it would be if the price were allowed to climb further. I believe this is a point that many care about for a number of reasons. I'm not arguing that it's better if you are optimizing solely for maximizing total utility received from the supply of the good, but I would question whether that is necessarily the right course of action.

sollewitt 7y ago

That's just poor reasoning on multiple levels: it assumes supply, the argument that it prevents hoarding misses that as prices are driven up the incentive to hold increases, and it overlooks that some populations night need the good immediately so real harm is being done. The gain is personal, the harm is social, this is ethics 101 and solipsistic pseudo-libertarion reasoning doesn't make it right.

logicchains 7y ago
>solipsistic pseudo-liberation reasoning Basic economics is solipsistic pseudo-liberation reasoning now?
- hodgesrm 7y ago
  The argument that the threat of gouging increases the motivation to hoard is basic economics. For analogous reasons there is FDIC insurance on bank accounts because the alternative is runs on banks that can lead to system collapse. Not every point on the supply/demand curve is a good place to be.
  - logicchains 7y ago
    >The argument that the threat of gouging increases the motivation to hoard is basic economics. But the ability to increase price freely also decreases actual hoarding, because when stores see a massive increase in demand, they'll be incentivised to increase prices, which will deter unnecessary purchases.
    - hodgesrm 7y ago
      If your goal is to prevent hoarding and ensure there's enough for everyone, it's simpler just to limit the number of rolls each customer gets. Fewer corner cases.
  - waterhouse 7y ago
    Are people hoarding because they're worried about being gouged on the price, or because they're worried about being unable to buy at all? Are the viral social media posts "OMG look at these high prices", or "OMG look at these empty shelves"? From a hypothetical perspective, which scenario creates a stronger incentive to buy supplies now: "Prices might rise 10x in the next month, but buying will always be possible", or "The supply might run out completely in the next month"?

logicchains 7y ago

You'll find a similar argument in any basic econ textbook. Put a cap on prices, then when demand rises for something (which normally leads to an increase in price, all other things being equal), the lack of an accompanying rise in price means there is no incentive to produce more of the good (no incentive for more producers to enter the market), so there isn't a corresponding increase in supply. Might work okay in China, where the government can e.g. command factories to switch to producing masks, but it means American factory owners won't have any incentive to switch over to producing them.

hobs 7y ago
Do you actually think our economy needs 200x as much hand sanitizer production? If the demand runs high enough for long enough, it wont be an emergency, and emergency measures don't apply.
- logicchains 7y ago
  >Do you actually think our economy needs 200x as much hand sanitizer production? Yes I do. If everybody is now sanitising their hands thoroughly and regularly throughout the day to prevent infection, this could easily be a 200x increase in hand sanitizer usage compared to what it was previously.
wbl 7y ago
The President does have the power to direct factories to make masks during a national emergency.
- logicchains 7y ago
  That would be much more effective at increasing supply than price caps.
XorNot 7y ago
And like most things, basic econ is not the be all and end all of how the world works otherwise we wouldn't have those all-important second year econ classes. Price gouging is not an efficient market result for anyone - the goods aren't actually, in real terms, worth the temporary price (the costs of manufacturer's switching over production is going to wind up much higher then any profit they can make once they're tooled up) nor does their value represent efficient allocation of resources - the guy with 11,000 bottles of hand sanitizer has no use for them, outside of the extremely limited window of people panicking due to uncertainty. But really, whether anyone believes this can be viewed through a very different lens: multiple times in the past week, US exchanges have ceased trading due to automatic circuit breakers from 7% drops in the market. Surely if the market is all knowing we shouldn't trigger these mechanisms and instead just let the invisible perfect hand let people sell stocks freely. After all, if we don't allow sudden plunges, what incentive will there be for investors to properly allocate their risk in the future? But, no one's making that argument. Nor is anyone questioning why it was suddenly urgent that the government put $USD1.5 trillion of liquidity into the market.

djhworld 7y ago

> Higher prices are also a deterrent against hoarding, particularly in the days leading up to a disaster. To be on the safe side, many consumers are inclined to buy more than enough of whatever they think they'll need. The more expensive the propane is, the more is available for everyone else. I think this makes sense. It would definitely stop people like this guy [1] going out and cleaning all the local stores/rural stores and mom and pop outlets of cleaning supplies, then selling the stuff on for a huge profit... [1] https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html?utm_source=pocket&utm_medium=email&utm_campaign=pockethits https://www.nytimes.com/2020/03/14/technology/coronavirus-pu...

sneak 7y ago
If the stores are underpricing, why shouldn’t people who are paying more attention reap those profits instead? Someone’s going to get it. I’d rather it go to those paying attention and willing to put in the work to get it to where it is most needed.

maxerickson 7y ago

It'd likely be good business for Costco to keep prices where they have been and limit each customer to a certain amount. (I expect the goodwill would outweigh the costs and any "foregone" profit) Not imposed by the government, not socialism, just good business.