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From an economics stand point, I don't understand why the government should ban price-gouging. Doesn't this place an artificial price ceiling that will ensure a

From an economics stand point, I don't understand why the government should ban price-gouging. Doesn't this place an artificial price ceiling that will ensure a shortage of goods? I would personally rather stores have items such as food/water at marked-up prices than not at all.

vikramkr 7y ago
I think governments would rather that people that get it first have access than the peoplwnehat can't afford it. If you're going to have to essentially have some people not get supplies, basing it off of wealth and income is not politically optimal
- logicchains 7y ago
  If we look at who it's most dangerous too, elderly people, then basing it off wealth would actually be in their favour compared to basing it off who can get to stores quicker to hoard it.
  - geofft 7y ago
    That's an inefficient proxy - there are plenty of poor elderly people (note that elderly people are often retired) and rich young people. If we're going to say anything other than "The people with the most ability to pay should get the goods because they have the most ability to pay, in and of itself," then the free market is the wrong tool to use.
  - vikramkr 7y ago
    There are poor elderly people too. I think the best response in cases of true need like this is some sort of government intervention and rationing based on need as well as some sort of subsidy to make scaling production profitable. Politically the let the market decide ideology is utterly infeasible - not only are most politicians fundamentally good people that care about their constituents and simply aren't the type to stand by while there's a shortage, there's also the political consideration of how your relection chances will be impacted by attack ads detailing that time you stood by as an elderly individual saw a shelf stocked with purell but couldn't afford the gouged price who then went on to pass away due to the virus. Externalities might not be priced, but they can vote.
- kragen 7y ago
  Having people line up around the block to be first when the pharmacy opens is perhaps politically optimal but it is not epidemiologically optimal. Except from the point of view of the virus.
  - vikramkr 7y ago
    Absolutely. And i think this pandemic is revealing the extent to which political optimality bis deviating from epidemiologic optimality, and the devastating consequences of that given that our politicians are constrained by politics. This has absolutely revealed a need for structural reform to make what's politically optimal and epidemiologically optimal line up, and considering how complex a challenge that is, that's a conversation to start sooner rather than later.
yladiz 7y ago
No, it ensures that companies (and individuals) won't increase the price unnecessarily just to profit additionally from something like a pandemic.
- daenz 7y ago
  ...by placing an artificial price ceiling that will ensure a shortage of goods. In a pandemic, prices go up, rightly or wrongly, because there is an increased demand. This price scales as the difference between supply and demand grows, in order to decelerate how fast the shortage occurs relative to the speed of creating the good. The price ceiling just means the shortage happens immediately.
  - yladiz 7y ago
    But what is the price ceiling in this case? I fail to understand this argument, as this doesn't regulate the price of manufacturing a good but rather then price of its sale. If manufacturers aren't the ones setting the high prices then why would they be disincentivized to make more goods?
    - justinmeiners 7y ago
      Distribution is also a cost. Imagine a hurricane where roads are damaged and supplies can't be brought it. If incentives are high enough people will urgently find a way to get it in to sell things people want If prices are fixed, they may just wait until the normal trucks can make a delivery.
ardit33 7y ago
Because a lot of the short term price gouging is artificial/predatory: "Vancouver couple exploits pandemic by hoarding Lysol wipes and charging double to resell them." https://www.thestar.com/news/canada/2020/03/12/were-hustlers-amid-coronavirus-fears-this-couple-has-made-more-than-100000-reselling-lysol-wipes.html https://www.thestar.com/news/canada/2020/03/12/were-hustlers... They are not raising prices to produce more, but just hoarding and then reselling it at higher prices. "Price Gouger Unable to Sell 17,700 Bottles of Hand Sanitizer after Amazon Crackdown" https://www.nytimes.com./2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html?0p19G=2870 https://www.nytimes.com./2020/03/14/technology/coronavirus-p...
- daenz 7y ago
  I would argue that the supply/demand pricing isn't responding fast enough to the hoarders. If the price was fully elastic, as people began to hoard lysol wipes, prices would rise on the hoarders and make it much less profitable for them. But prices aren't rising correctly, much like an artificial price ceiling would do, making it possible and profitable for hoarders to create a shortage.
  - jayd16 7y ago
    >I would argue that the supply/demand pricing isn't responding fast enough Yes, that's a failing of the real free market we live. It already failed so I don't see why suggesting the status quo is useful. In the real world we're not all omniscient, rational actors. Protections like this are useful in the short term.
    - daenz 7y ago
      >Protections like this are useful in the short term. Explain how this "protection" will stop the stated problem of people hoarding and reselling. Since when have fines or punishment stopped black markets from existing? >It already failed so I don't see why suggesting the status quo is useful. "The car brakes couldn't decelerate the car fast enough, they failed, so I don't see why suggesting better brakes is useful." Decentralized, free market pricing is enormously robust and flexible and has allowed the global economy to flourish. But since it has failed you, what would you like to replace it with?
nostrademons 7y ago
From a political standpoint, I see the point. Price gouging makes people extremely mad, and it redirects goods from poor people to wealthy people. When tempers are already fraying and maintaining social order is already difficult because of an emergency, the last thing a government needs is a nucleus for lots of pissed-off people to rally around. Remember that the first priority of any government is to keep itself in power. Governments that don't accomplish this are no longer governments. Efficiently allocating goods is a secondary consideration that helps them achieve this, but if doing so means they end up with a revolution or rebellion anyway, it wasn't very effective.
- logicchains 7y ago
  >it redirects goods from poor people to wealthy people. In this case it's arguably something desirable, as the most at-risk group, the elderly, on average are much wealthier than young people. Someone over 80 is around 100x more likely to die from the virus than somebody under 40.
  - nostrademons 7y ago
    Think in terms of the survival of the government, not in terms of general social welfare. If you have a lot of pissed off poor young people, they're often fairly socially well-connected, they're more aggressive, they're able-bodied, and they can fight. If you have a lot of pissed off old people, they'll continue to be pissed off but probably won't make a whole lot of trouble. They might make a lot of trouble come election day, but in an emergency the priority is the survival of the government now, so that you can get to the next election. This is not an academic thought exercise, BTW - a lot of the social unrest of 2019 in Venezuela, Chile, Hong Kong, Zimbabwe, Iraq, etc. came from prices rising quickly enough that young people could not afford basic necessities.
    - KarlKemp 7y ago
      You’re overdoing the “priority of governments is to survive”-shtick. Any number of administrations have lost elections, for example. Very few tried to stay in power. There is absolutely zero risk of a violent overthrow of the California state government right now. Even if politicians were as craven as you suggest, you have already noticed how lame your argument is with regards to age groups: old people have far more power on Election Day.
whatshisface 7y ago
Price gouging laws are based on the idea of a totally inflexible supply. If it is not possible to alter the number of water bottles showing up in CVS every day, then an increase in prices would essentially be a big capital gains bonus for CVS because they just so happened to have some water sitting around. Now, even in this situation, you can justify why CVS should get to keep their capital gains: it would motivate them to keep more water around so that they could benefit more in the case of an emergency. So to really explain price gouging laws you have to add a second assumption, that the shelf or warehouse space allocated to emergency goods during peacetime can't change for some reason.
amluto 7y ago
Here’s some price gouging: https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html?action=click&module=Spotlight&pgtype=Homepage https://www.nytimes.com/2020/03/14/technology/coronavirus-pu... Banning that is not going to have any effect on production.
jseliger 7y ago
Exactly: https://www.econtalk.org/munger-on-price-gouging/ https://www.econtalk.org/munger-on-price-gouging/
jayd16 7y ago
The economics only works out for rational actors. People are temporarily acting irrational. Desire to gouge and fear of being gouged are causing a run on goods because people are in a panic. Hopefully this will stem temporary silliness. And this is an order on gouging, not price fixing.
rtkwe 7y ago
Two problems; factories cannot surge up immediately and all of the actual gouging here is not actually making it to the manufacturers, it's people mass buying out stocks and reselling. So the supply side isn't actually seeing any increased price to increase their supply. The Econ 101 pro price gouging logic breaks down here because of that.
- generalpass 7y ago
  > Two problems; factories cannot surge up immediately and all of the actual gouging here is not actually making it to the manufacturers, it's people mass buying out stocks and reselling. So the supply side isn't actually seeing any increased price to increase their supply. The Econ 101 pro price gouging logic breaks down here because of that. This may be due to the fact that the retailers are heavily threatened by government action, so they take no action to increase prices. Contrast this with the must-have Christmas toy, which may otherwise be seeing similar unanticipated demand and suddenly the same retailers are incredible pricing experts. The factories will need to maintain long-term relationships with these retailers and they may also have similar threats from government action. More likely is that whatever slack there is in the supply chain will be exported to countries which have no such price control policies, because price-control policies do not address the underlying issues of supply and demand.
  - rtkwe 7y ago
    Some items like toilet paper have and extremely flat demand pattern it turns out, so plants are already running basically at capacity 24/7 so there's not much actual slack in the supply chain to increase. https://www.latimes.com/business/story/2020-03-14/coronavirus-will-we-run-out-of-toilet-paper https://www.latimes.com/business/story/2020-03-14/coronaviru...
- gwright 7y ago
  > factories cannot surge up immediately Really? How about longer shifts, double shifts, weekend shifts? If you could suddenly make twice the profit on your product you would figure that out pretty quick! If you can't make any extra profit, why bother?
deleted 7y ago
[deleted]
6gvONxR4sf7o 7y ago
Because you shouldn't look with an econ lens. It's the same reason charging a ton for insulin is bad for society.
- ska 7y ago
  Econ lenses can be quite useful, but econ 101 ones rarely are in a context like this - it's the econ equivalent of they physics "assume a friction-less spherical cow in a vacuum"; i.e. ignoring some of the things that make this an interesting real world problem, doing X should mean Y. Except it doesn't, for all the reasons you assumed away.

vikramkr 7y ago

I think governments would rather that people that get it first have access than the peoplwnehat can't afford it. If you're going to have to essentially have some people not get supplies, basing it off of wealth and income is not politically optimal

logicchains 7y ago
If we look at who it's most dangerous too, elderly people, then basing it off wealth would actually be in their favour compared to basing it off who can get to stores quicker to hoard it.
- geofft 7y ago
  That's an inefficient proxy - there are plenty of poor elderly people (note that elderly people are often retired) and rich young people. If we're going to say anything other than "The people with the most ability to pay should get the goods because they have the most ability to pay, in and of itself," then the free market is the wrong tool to use.
- vikramkr 7y ago
  There are poor elderly people too. I think the best response in cases of true need like this is some sort of government intervention and rationing based on need as well as some sort of subsidy to make scaling production profitable. Politically the let the market decide ideology is utterly infeasible - not only are most politicians fundamentally good people that care about their constituents and simply aren't the type to stand by while there's a shortage, there's also the political consideration of how your relection chances will be impacted by attack ads detailing that time you stood by as an elderly individual saw a shelf stocked with purell but couldn't afford the gouged price who then went on to pass away due to the virus. Externalities might not be priced, but they can vote.
kragen 7y ago
Having people line up around the block to be first when the pharmacy opens is perhaps politically optimal but it is not epidemiologically optimal. Except from the point of view of the virus.
- vikramkr 7y ago
  Absolutely. And i think this pandemic is revealing the extent to which political optimality bis deviating from epidemiologic optimality, and the devastating consequences of that given that our politicians are constrained by politics. This has absolutely revealed a need for structural reform to make what's politically optimal and epidemiologically optimal line up, and considering how complex a challenge that is, that's a conversation to start sooner rather than later.

yladiz 7y ago

No, it ensures that companies (and individuals) won't increase the price unnecessarily just to profit additionally from something like a pandemic.

daenz 7y ago
...by placing an artificial price ceiling that will ensure a shortage of goods. In a pandemic, prices go up, rightly or wrongly, because there is an increased demand. This price scales as the difference between supply and demand grows, in order to decelerate how fast the shortage occurs relative to the speed of creating the good. The price ceiling just means the shortage happens immediately.
- yladiz 7y ago
  But what is the price ceiling in this case? I fail to understand this argument, as this doesn't regulate the price of manufacturing a good but rather then price of its sale. If manufacturers aren't the ones setting the high prices then why would they be disincentivized to make more goods?
  - justinmeiners 7y ago
    Distribution is also a cost. Imagine a hurricane where roads are damaged and supplies can't be brought it. If incentives are high enough people will urgently find a way to get it in to sell things people want If prices are fixed, they may just wait until the normal trucks can make a delivery.

ardit33 7y ago

Because a lot of the short term price gouging is artificial/predatory: "Vancouver couple exploits pandemic by hoarding Lysol wipes and charging double to resell them." https://www.thestar.com/news/canada/2020/03/12/were-hustlers-amid-coronavirus-fears-this-couple-has-made-more-than-100000-reselling-lysol-wipes.html https://www.thestar.com/news/canada/2020/03/12/were-hustlers... They are not raising prices to produce more, but just hoarding and then reselling it at higher prices. "Price Gouger Unable to Sell 17,700 Bottles of Hand Sanitizer after Amazon Crackdown" https://www.nytimes.com./2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html?0p19G=2870 https://www.nytimes.com./2020/03/14/technology/coronavirus-p...

daenz 7y ago
I would argue that the supply/demand pricing isn't responding fast enough to the hoarders. If the price was fully elastic, as people began to hoard lysol wipes, prices would rise on the hoarders and make it much less profitable for them. But prices aren't rising correctly, much like an artificial price ceiling would do, making it possible and profitable for hoarders to create a shortage.
- jayd16 7y ago
  >I would argue that the supply/demand pricing isn't responding fast enough Yes, that's a failing of the real free market we live. It already failed so I don't see why suggesting the status quo is useful. In the real world we're not all omniscient, rational actors. Protections like this are useful in the short term.
  - daenz 7y ago
    >Protections like this are useful in the short term. Explain how this "protection" will stop the stated problem of people hoarding and reselling. Since when have fines or punishment stopped black markets from existing? >It already failed so I don't see why suggesting the status quo is useful. "The car brakes couldn't decelerate the car fast enough, they failed, so I don't see why suggesting better brakes is useful." Decentralized, free market pricing is enormously robust and flexible and has allowed the global economy to flourish. But since it has failed you, what would you like to replace it with?

nostrademons 7y ago

From a political standpoint, I see the point. Price gouging makes people extremely mad, and it redirects goods from poor people to wealthy people. When tempers are already fraying and maintaining social order is already difficult because of an emergency, the last thing a government needs is a nucleus for lots of pissed-off people to rally around. Remember that the first priority of any government is to keep itself in power. Governments that don't accomplish this are no longer governments. Efficiently allocating goods is a secondary consideration that helps them achieve this, but if doing so means they end up with a revolution or rebellion anyway, it wasn't very effective.

logicchains 7y ago
>it redirects goods from poor people to wealthy people. In this case it's arguably something desirable, as the most at-risk group, the elderly, on average are much wealthier than young people. Someone over 80 is around 100x more likely to die from the virus than somebody under 40.
- nostrademons 7y ago
  Think in terms of the survival of the government, not in terms of general social welfare. If you have a lot of pissed off poor young people, they're often fairly socially well-connected, they're more aggressive, they're able-bodied, and they can fight. If you have a lot of pissed off old people, they'll continue to be pissed off but probably won't make a whole lot of trouble. They might make a lot of trouble come election day, but in an emergency the priority is the survival of the government now, so that you can get to the next election. This is not an academic thought exercise, BTW - a lot of the social unrest of 2019 in Venezuela, Chile, Hong Kong, Zimbabwe, Iraq, etc. came from prices rising quickly enough that young people could not afford basic necessities.
  - KarlKemp 7y ago
    You’re overdoing the “priority of governments is to survive”-shtick. Any number of administrations have lost elections, for example. Very few tried to stay in power. There is absolutely zero risk of a violent overthrow of the California state government right now. Even if politicians were as craven as you suggest, you have already noticed how lame your argument is with regards to age groups: old people have far more power on Election Day.

whatshisface 7y ago

Price gouging laws are based on the idea of a totally inflexible supply. If it is not possible to alter the number of water bottles showing up in CVS every day, then an increase in prices would essentially be a big capital gains bonus for CVS because they just so happened to have some water sitting around. Now, even in this situation, you can justify why CVS should get to keep their capital gains: it would motivate them to keep more water around so that they could benefit more in the case of an emergency. So to really explain price gouging laws you have to add a second assumption, that the shelf or warehouse space allocated to emergency goods during peacetime can't change for some reason.

amluto 7y ago

Here’s some price gouging: https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html?action=click&module=Spotlight&pgtype=Homepage https://www.nytimes.com/2020/03/14/technology/coronavirus-pu... Banning that is not going to have any effect on production.

jseliger 7y ago

Exactly: https://www.econtalk.org/munger-on-price-gouging/ https://www.econtalk.org/munger-on-price-gouging/

jayd16 7y ago

The economics only works out for rational actors. People are temporarily acting irrational. Desire to gouge and fear of being gouged are causing a run on goods because people are in a panic. Hopefully this will stem temporary silliness. And this is an order on gouging, not price fixing.

rtkwe 7y ago

Two problems; factories cannot surge up immediately and all of the actual gouging here is not actually making it to the manufacturers, it's people mass buying out stocks and reselling. So the supply side isn't actually seeing any increased price to increase their supply. The Econ 101 pro price gouging logic breaks down here because of that.

generalpass 7y ago
> Two problems; factories cannot surge up immediately and all of the actual gouging here is not actually making it to the manufacturers, it's people mass buying out stocks and reselling. So the supply side isn't actually seeing any increased price to increase their supply. The Econ 101 pro price gouging logic breaks down here because of that. This may be due to the fact that the retailers are heavily threatened by government action, so they take no action to increase prices. Contrast this with the must-have Christmas toy, which may otherwise be seeing similar unanticipated demand and suddenly the same retailers are incredible pricing experts. The factories will need to maintain long-term relationships with these retailers and they may also have similar threats from government action. More likely is that whatever slack there is in the supply chain will be exported to countries which have no such price control policies, because price-control policies do not address the underlying issues of supply and demand.
- rtkwe 7y ago
  Some items like toilet paper have and extremely flat demand pattern it turns out, so plants are already running basically at capacity 24/7 so there's not much actual slack in the supply chain to increase. https://www.latimes.com/business/story/2020-03-14/coronavirus-will-we-run-out-of-toilet-paper https://www.latimes.com/business/story/2020-03-14/coronaviru...
gwright 7y ago
> factories cannot surge up immediately Really? How about longer shifts, double shifts, weekend shifts? If you could suddenly make twice the profit on your product you would figure that out pretty quick! If you can't make any extra profit, why bother?

deleted 7y ago

[deleted]

6gvONxR4sf7o 7y ago

Because you shouldn't look with an econ lens. It's the same reason charging a ton for insulin is bad for society.

ska 7y ago
Econ lenses can be quite useful, but econ 101 ones rarely are in a context like this - it's the econ equivalent of they physics "assume a friction-less spherical cow in a vacuum"; i.e. ignoring some of the things that make this an interesting real world problem, doing X should mean Y. Except it doesn't, for all the reasons you assumed away.