4 ms·

yes, possible. it’s still called price gouging.

jariel 7y ago
He's speculating on a commodity, it's just not corn or potash. Nobody expects that there's going to be an acute, worldwide shortage of wheat and that it will be unavailable anywhere. Demand goes up, prices go up, same as anything. Now - this kind of arbitrage has very, very limited value for society (there's an economic argument for price clearing), so we can think of it as 'gouging', but sometimes this is not the case. I think at this scale, price arbitraging for normal household goods provides zero net value (in fact negative value because it involves work and effort without net value creation). Amazon, Wallmart etc. should probably clamp down on this because it's their customers who pay by having middlemen in between.
- ThrowawayR2 7y ago
  > "He's speculating on a commodity, it's just not corn or potash." Lives are not at stake because of corn or potash speculation.
  - jariel 7y ago
    If there are acute shortages, yes lives can be at stake because of major disruptions in the food supply. Several weeks ago, nobody assumed that 'Purell' or 'toilet paper' was going to fully sell out everywhere, rather, simply that there would be increased demand for it. All retailers who sell Purell have their buyers clamoring to buy as much as possible because they know their customers want it, and there's no reason to think that the price won't be increased somewhat. In fact, given the excessive demand and challenges in production, Purell will probably be increasing its wholesale price ... and then some. So are retailers - buying up as much Purell as possible and probably selling for a little bit of a markup considered 'hoarders'? So long as they have the intention of selling it for not-some-crazy-price, then it's just normal business. There's no reason individuals can't do the same. As long as this guy was not price gauging, and he was in fact selling, then what are they going to charge him with exactly? It's reasonable that the government put restrictions on certain goods during a crisis, such as margin limits, the requirement to not hold inventory etc. but the same would have to apply to this guy. If he bought his inventory before any emergency crisis or calamity ... then again, what's the legal crime? Buying Purell 2 months ago was normal, but 'having Purell inventory' now is illegal? I have no lost love for this guy, but that he gave his inventory away is punishment enough.
    - wilshiredetroit 7y ago
      He stopped being "supply and demand" when the state of Tennessee declared a state emergency. Upon the declaration of a state emergency, charging "grossly excessive" prices for food, construction services, emergency supplies, or other vital goods or services. Subject to civil penalty of between $1,000 and $3,000 per violation. The definition of "excessive" or "unconscionable" pricing is generally determined by looking at average prices in the affected area over a given look-back period prior to the emergency, typically six months or so. If prices are 10 or 15 percent higher (some states have different thresholds), then it may be determined that price gouging has occurred. *He was making good money while the going was good.. --BUT-- he should've known the laws the surround his entrepreneurial endeavor. He should've known that he needed to stop selling over 10% ~ 15% when the state declared an emergency. --- The system worked.
- eru 7y ago
  Why would there be no net value creation? People's willingness to pay for the service suggests otherwise?
  - jariel 7y ago
    "Why would there be no net value creation? People's willingness to pay for the service suggests otherwise?" No - 'willingness to pay' is not 'value creation'. The net surpluses to society are the same with a middleman, it's just they've been distributed differently. Assume: $1 cost to make good $5 average consume 'highest price point' This means, a bottle sold for $2 to a consumer, means a $3 surplus for the consumer. If there is a middleman who buys for $2 and then sells for $3 to the consumer, the consumer surpluses are reduced. Consumers only get $2 instead of $3 in surplus, because $1 went to the middle man. The 'economic pie' is not increased by basic arbitrage. Now, the caveats: 1) In large liquid markets, price clearing and discovery actually ads some financial value. Even providing liquidity has material value. So in some cases, there is some systematic benefit from arbitrage. There is some 'growing of the pie' and 'more surpluses' for everyone at this point. 2) If it's 'more than arbitrage'. If the 'middleman' was doing shipping, buying in bulk and selling in units, special shipping/packaging or anything else, then there's possibly value creation. Even buying ahead of time, sitting on inventory and smoothing out the supply during demand peaks - this is not so much arbitrage/middleman - this is actually wholesaling. Again, they are creating value. 3) The demand curve has shifted quite a lot over the last little while, but I don't think this changes the arbitrage, it's really just arbitrage. It has a 'caveat' in that this middleman guy may very well have not known the real extent of a supply shock. 4) Even when there can be 'value creation' it doesn't mean 'everyone wins' necessarily, for example, the wholesaler could increase the real value of a product by $X but then sell it for exactly that much more, so the 'net economic pie' is increasing, but they were able to 'grab all of the increase' meaning consumers don't win anything. Most capitalism involves quite a bit of economic surplus for consumers, this is why capitalism works really well and makes almost everyone rich. That you are able to buy a 'dishwasher' for $500, saves you probably $10's of thousands of dollars in labor, i.e. there are massive surpluses to you. Similar for most commodity goods - consumers win big time, even if they don't get direct dollars to put in their bank account as a measure of that value capture.

He's speculating on a commodity, it's just not corn or potash. Nobody expects that there's going to be an acute, worldwide shortage of wheat and that it will be unavailable anywhere. Demand goes up, prices go up, same as anything. Now - this kind of arbitrage has very, very limited value for society (there's an economic argument for price clearing), so we can think of it as 'gouging', but sometimes this is not the case. I think at this scale, price arbitraging for normal household goods provides zero net value (in fact negative value because it involves work and effort without net value creation). Amazon, Wallmart etc. should probably clamp down on this because it's their customers who pay by having middlemen in between.

ThrowawayR2 7y ago
> "He's speculating on a commodity, it's just not corn or potash." Lives are not at stake because of corn or potash speculation.
- jariel 7y ago
  If there are acute shortages, yes lives can be at stake because of major disruptions in the food supply. Several weeks ago, nobody assumed that 'Purell' or 'toilet paper' was going to fully sell out everywhere, rather, simply that there would be increased demand for it. All retailers who sell Purell have their buyers clamoring to buy as much as possible because they know their customers want it, and there's no reason to think that the price won't be increased somewhat. In fact, given the excessive demand and challenges in production, Purell will probably be increasing its wholesale price ... and then some. So are retailers - buying up as much Purell as possible and probably selling for a little bit of a markup considered 'hoarders'? So long as they have the intention of selling it for not-some-crazy-price, then it's just normal business. There's no reason individuals can't do the same. As long as this guy was not price gauging, and he was in fact selling, then what are they going to charge him with exactly? It's reasonable that the government put restrictions on certain goods during a crisis, such as margin limits, the requirement to not hold inventory etc. but the same would have to apply to this guy. If he bought his inventory before any emergency crisis or calamity ... then again, what's the legal crime? Buying Purell 2 months ago was normal, but 'having Purell inventory' now is illegal? I have no lost love for this guy, but that he gave his inventory away is punishment enough.
  - wilshiredetroit 7y ago
    He stopped being "supply and demand" when the state of Tennessee declared a state emergency. Upon the declaration of a state emergency, charging "grossly excessive" prices for food, construction services, emergency supplies, or other vital goods or services. Subject to civil penalty of between $1,000 and $3,000 per violation. The definition of "excessive" or "unconscionable" pricing is generally determined by looking at average prices in the affected area over a given look-back period prior to the emergency, typically six months or so. If prices are 10 or 15 percent higher (some states have different thresholds), then it may be determined that price gouging has occurred. *He was making good money while the going was good.. --BUT-- he should've known the laws the surround his entrepreneurial endeavor. He should've known that he needed to stop selling over 10% ~ 15% when the state declared an emergency. --- The system worked.
eru 7y ago
Why would there be no net value creation? People's willingness to pay for the service suggests otherwise?
- jariel 7y ago
  "Why would there be no net value creation? People's willingness to pay for the service suggests otherwise?" No - 'willingness to pay' is not 'value creation'. The net surpluses to society are the same with a middleman, it's just they've been distributed differently. Assume: $1 cost to make good $5 average consume 'highest price point' This means, a bottle sold for $2 to a consumer, means a $3 surplus for the consumer. If there is a middleman who buys for $2 and then sells for $3 to the consumer, the consumer surpluses are reduced. Consumers only get $2 instead of $3 in surplus, because $1 went to the middle man. The 'economic pie' is not increased by basic arbitrage. Now, the caveats: 1) In large liquid markets, price clearing and discovery actually ads some financial value. Even providing liquidity has material value. So in some cases, there is some systematic benefit from arbitrage. There is some 'growing of the pie' and 'more surpluses' for everyone at this point. 2) If it's 'more than arbitrage'. If the 'middleman' was doing shipping, buying in bulk and selling in units, special shipping/packaging or anything else, then there's possibly value creation. Even buying ahead of time, sitting on inventory and smoothing out the supply during demand peaks - this is not so much arbitrage/middleman - this is actually wholesaling. Again, they are creating value. 3) The demand curve has shifted quite a lot over the last little while, but I don't think this changes the arbitrage, it's really just arbitrage. It has a 'caveat' in that this middleman guy may very well have not known the real extent of a supply shock. 4) Even when there can be 'value creation' it doesn't mean 'everyone wins' necessarily, for example, the wholesaler could increase the real value of a product by $X but then sell it for exactly that much more, so the 'net economic pie' is increasing, but they were able to 'grab all of the increase' meaning consumers don't win anything. Most capitalism involves quite a bit of economic surplus for consumers, this is why capitalism works really well and makes almost everyone rich. That you are able to buy a 'dishwasher' for $500, saves you probably $10's of thousands of dollars in labor, i.e. there are massive surpluses to you. Similar for most commodity goods - consumers win big time, even if they don't get direct dollars to put in their bank account as a measure of that value capture.