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I see some commenters saying that preventing price gouging will take away the incentive to produce more of a certain good when the demand increases. This doesn'

by sxyuan 7y ago

I see some commenters saying that preventing price gouging will take away the incentive to produce more of a certain good when the demand increases. This doesn't make sense to me. If, under normal market conditions, producers already make X amount (of , say, toilet paper) due to Y demand at price Z, when the demand spikes to 2Y, if you can produce and sell 2X goods at the same unit cost, you can double your profit without raising the price at all. One might argue that in order to rapidly increase production capacity, the unit cost will rise as well. But that doesn't necessarily mean that you have to allow prices to rise. As long as the extra investment allows you to produce and sell enough units so that the extra profit is greater than your cost, the incentive is still there. And that's ignoring the fact that a price cap doesn't have to fix the price at current levels - it can limit the increase to a reasonable amount.

aeternum 7y ago
Most suppliers cannot simply produce 2Y the goods at the same price. Switching lines involves retooling and, risk, and/or overtime, all of which are expensive. If that switch can be done for under the price cap, then the price should remain under the price cap anyway due to competition. If it cannot, then shortages will result.
SECProto 7y ago
> If, under normal market conditions, producers already make X amount (of , say, toilet paper) due to Y demand at price Z, when the demand spikes to 2Y, if you can produce and sell 2X goods at the same unit cost, you can double your profit without raising the price at all. This doesn't accurately reflect how the cost would scale. X isn't easily adjustable - it reflects annualized wages, depreciation of production line that is sized for production amount X, etc. Equipment sitting idle is wasted money, so production lines operate close to maximum production already (or at least nowhere near half capacity, that would allow 2X production)

by sxyuan 7y ago

aeternum 7y ago

Most suppliers cannot simply produce 2Y the goods at the same price. Switching lines involves retooling and, risk, and/or overtime, all of which are expensive. If that switch can be done for under the price cap, then the price should remain under the price cap anyway due to competition. If it cannot, then shortages will result.

SECProto 7y ago

> If, under normal market conditions, producers already make X amount (of , say, toilet paper) due to Y demand at price Z, when the demand spikes to 2Y, if you can produce and sell 2X goods at the same unit cost, you can double your profit without raising the price at all. This doesn't accurately reflect how the cost would scale. X isn't easily adjustable - it reflects annualized wages, depreciation of production line that is sized for production amount X, etc. Equipment sitting idle is wasted money, so production lines operate close to maximum production already (or at least nowhere near half capacity, that would allow 2X production)