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I still don't understand why price gouging is not accepted. Only high prices are an incentive for new producers to enter a market. Or rather: high prices promis

I still don't understand why price gouging is not accepted. Only high prices are an incentive for new producers to enter a market. Or rather: high prices promise huge return on investments so that investors allocate money for producers to open new production facilities. With fixed prices, there is not enough profit in opening new production lines to balance the risk of entering a new market or spending more money on fast transportation methods. It makes the situation even worse because those with free distribution channels will buy all price-fixed products and leave nothing for Amazon customers.

rileymat2 6y ago
Generally, I agree with you. But, I am not sure if a momentary shortage is enough to create this incentive years out, when the price will likely normalize. The other reason for high prices beyond inducing more sellers is to be a form of rationing based on ability to pay. And in a crisis with necessities people do not like this method emotionally and prefer a more democratic method.
- WalterBright 6y ago
  > a form of rationing based on ability to pay That is not rationing.
  - rileymat2 6y ago
    There is a pedantic argument to be made about the exact definition of rationing, but "rationing based on the ability to pay" as a phrase is a very common description or turn of phrase, Google confirms this.
    - WalterBright 6y ago
      That isn't how the word is defined. Google the definition of rationing :-) People misuse language all the time, such as using "literally" for emphasis rather than description, but when talking economics one should stick with what the economic terms actually mean. For a more relevant example, "free markets" do not mean you can pickup things at the market at no cost.
      - vageli 6y ago
        > That isn't how the word is defined. Google the definition of rationing :-) I did as you suggested and got this: > allow someone to have only (a fixed amount of a certain commodity). So the definition does not specify the function by which resources are distributed. The "fixed amount" can be a schedule based on income and not violate the definition.
        WalterBright 6y ago
        Um, a free market does not "allow" someone to have only a "fixed" amount. Trying to torture the definitions of words to make this work to save a rhetorical point is not going to work with me.
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        sokoloff 6y ago
        Wait? Did you really just say that a “fixed amount” is equivalent to what amounts to linear function of your income?
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        vageli 6y ago
        I guess I took the fixed value to be the function, and not the... value. I see my misunderstanding now.
vmception 6y ago
Price gouging is used in multiple contexts at once to conflate multiple separate issues. This article is just about a private company with its own internal company policies sanctioning sellers on their platform for higher than average prices, and sellers circumventing that. So not really about any legal restrictions, this is an issue with Amazon and not any discussion about the state curbing temporarily market signals, which I think your comment would be more about.
dheera 6y ago
The problem with price gouging is that it opens doors to people hoarding supplies and reselling them at higher cost. Sitting in an armchair reselling things at a higher price is an inefficient allocation of resources during a pandemic, prevents people in need from being able to access those resources, and is an all-around waste of someone's two hands reselling things when they could be using those hands to directly do social good instead. It doesn't help the world at all if only rich people are able to afford certain things like disinfectant and PPE; the virus is far more effectively controlled if everyone, no matter their socioeconomic class, has access to these things.
- goodside 6y ago
  While free-market pricing may create an incentive to hoard for resale, price ceilings also create an incentive to hoard for personal use. If I’m on the fence about whether I might need an N95 mask soon, and I learn they’re being sold at below-market prices due to ceilings, I’ll hoard because I’m worried they soon won’t be available at any price. I’m motivated to forecast the duration of the shortage and stockpile what I think I might need. If I overestimate, I don’t turn into a reseller, I just swallow the storage cost until I use them. When someone hoards for resale they can at least liquidate their oversupply to other customers, even if not at the price they hoped for. Prices don’t just discriminate between rich and poor, they discriminate between desperate needs and casual wants. Everyone agrees it’s a good thing for the poor to have access to things they desperately need, but price controls also ensure that wealthy people can buy lots of the available supply on a whim. Someone with a mold remediation business might be willing to stockpile thousands of N95’s if available at pre-COVID prices — storage is cheap, and they’ll be used eventually. But if they’re being sold at a 5x the normal price, they’re motivated to stretch their current supply through re-use and buy only what they immediately need. That’s why price controls and rationing should always happen at the same time, and the severity of price controls is constrained by the effectiveness of rationing. If you can easily defeat rationing (e.g. ordering from multiple online stores) it’s as though it doesn’t exist. In those cases, market prices make more sense for ensuring availability.
  - erik_seaberg 6y ago
mschuster91 6y ago
> I still don't understand why price gouging is not accepted. It's generally, libertarian/ancap circles aside, viewed as immoral to exploit the essential needs of people; also it incentivizes hoarding which puts the availability of critical goods even more at risk. We have seen this in action with loo rolls, hand sanitizer and non-perishable food in the recent crisis, and with people actually getting punished for it: https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html https://www.nytimes.com/2020/03/14/technology/coronavirus-pu...
- neilparikh 6y ago
  I think you’ve got it backwards. The only reason people were able to hoard so many units of hand sanitizer etc. was because stores sold it for too low of a price (ie. the store didn’t “price gouge”).
  - zhoujianfu 6y ago
    Exactly, if there are no price gouging laws, the increase in prices will “trickle up” to the manufacturers, who will then increase production, thereby lowering prices. With price gouging laws, an increase in demand is not allowed to increase prices, so there’s no incentive to increase supply, and the result is shortages.
    - KozmoNau7 6y ago
      The incentive to increase production supply is the ability to sell more products, which is decoupled from the ability to sell the same amount at higher prices.
- WalterBright 6y ago
  Rationing and price fixing cause hoarding. People hoard because they fear not being able to buy something in the future, which happens with the shortages caused by rationing and price fixing. For example, back in the 70's with price controls on gas, people hoarded gas. All that nonsense stopped literally overnight when Reagan repealed all gas and allocation controls.
naravara 6y ago
>I still don't understand why price gouging is not accepted. Only high prices are an incentive for new producers to enter a market. Or rather: high prices promise huge return on investments so that investors allocate money for producers to open new production facilities. Price gouging only applies in circumstances where supply is fixed for all intents and purposes, so it's purely an act of taking advantage of people in a crisis because you can. Anyone who can ramp up production is already ramping up as much as they can. In circumstances where it is accepted, it actually leads to bigger shortages since people benefit from hoarding.
- gowld 6y ago
  This is true in theory. In practice, as has been seen with Covid PPE, the price "gouging" threshold is sometimes set below the cost of production (due to fixed startup capital costs), preventing production. This paradox is severe for products with low marginal cost but high fixed cost, which is most things nowadays thanks to modern economy of scale. Price laws are per unit, but peoduction costs are amortized across a whole production lifetime, and the difference between "X units per month for 10 years" is quite different from "10X units per month for 1 month" is substantial.
  - naravara 6y ago
    >n practice, as has been seen with Covid PPE, the price "gouging" threshold is sometimes set below the cost of production (due to fixed startup capital costs), preventing production. If it was actually socially important you could just. . . pay for it out of the public funds as a form of emergency assistance or social insurance. Why enable retailers to gouge and exploit the most vulnerable people when you could just have everyone pitch in to fill the gap?
  - pgwhalen 6y ago
    Any source on that happening with Covid PPE? I’d love to read about it.
- mamon 6y ago
  When supply is fixed the price gouging serves as an important mechanism promoting efficient use of it. If a 30 oz bottle of hand sanitizer costs $50 then everyone would ask themselves: "Do I REALLY need 5 bottles of it?"
PeterisP 6y ago
Price gouging is accepted normally. It's just temporarily prohibited for the duration of an emergency for the products related to that emergency. Most emergencies are sufficiently short-term that they don't meaningfully reduce incentives for new producers to enter a market, because there's no time to adapt. E.g. an hour before a hurricane strikes, the price of water bottles and gas won't motivate new producers to enter a market, but there's a social interest to keep these prices stable. The main problem here is a prolonged "emergency with default rules" that's happening now, because the default rules are targeted at short emergenices. It's reasonable to announce an emergency now and figure out the details later; but now it's been many months and the "later" should have already arrived with specific "pandemic laws" replacing the generic emergency laws, but that's been problematic in many areas.
- codys 6y ago
  Yes, it could make a lot of sense to enact price control boards like those of the WW2 era to allow some level of price changes without allowing price changes to the extent that it is harmful to the national interest.
  - WalterBright 6y ago
    WW2 gas rationing produced drive-by shootings. (There was quite a black market of gas that sprung up due to rationing.)
    - erik_seaberg 6y ago
      WW2 wage controls prompted employer-provided health insurance, a terrible idea we're stuck with 75 years later.
- Jeremy1026 6y ago
  > It's just temporarily prohibited for the duration of an emergency for the products related to that emergency. How is a Nintendo Switch related to the COVID-19 emergency? If it counts because "people are bored" then what wouldn't fall under related to COVID-19?
Analemma_ 6y ago
Other people are doing a good job pointing out the theoretical and moral objections to this, but let me also add a tactical one. Libertarians, if you want to swing more people around to your way of thinking, let this issue go. Price gouging during emergencies is not the hill you want to die on: it pisses people off at deep, fundamental level, and validates the worst stereotypes of libertarians as people eager to sacrifice (other people's) lives on the altar of the free market. Pick your battles and don't push on this one.
- neilparikh 6y ago
  > libertarians as people eager to sacrifice (other people's) lives on the altar of the free market. I’m not defending price gouging (not informed enough to make a complete decision), but you should consider that libertarians genuinely believe that allowing “price gouging” (ie. having no price controls) will lead to better outcomes for every one, including more lives saved, rather than constructing a straw man about the free market.
  - e5india 6y ago
    > libertarians genuinely believe This is fundamentally the problem though isn't it? Belief is a matter of faith, and so regardless of how much experience we have with these situations no amount of evidence is going to sway them.
    - nickpp 6y ago
      Proof that free markets work is everywhere: pretty much any useful, successful product you are using. Prof that controlled marked fail is also everywhere: pretty much any government-run service. Almost like Economy is a science: it keeps working even if you don’t believe in it.
      - e5india 6y ago
        This comment is exactly what I'm talking about. The free market theory, if we want to call it that, has always also carried the implicit 'in the long run' and this is what we're quibbling about. Natural disasters, pandemics etc are short term conditions that don't allow enough time for the normal market mechanics to come into play. This is the argument essentially. Your belief in the markets is such that you cannot even allow for any instance where the free market is an imperfect solution and any kind of critique means that the person is anti market. I am not anti market. I simply do not consider the free markets some infallible system that works in every context. This is not some rhetorical device meant to sneak in Socialism. It is in fact possible to recognize the efficacy of the markets, over the long run, but still recognize that there are contexts that require some amount of intervention. I want to also comment on the following: "even if you don't believe in it" I don't consider this something to believe in or not believe in. It's just a system, a tool, it has strengths and it has weaknesses. Sometimes it's the right approach, sometimes it's not.
seganddr 6y ago
Allowing price gouging encourages speculative hoarding which makes markets less stable and less fair. For essential items this is very undesirable for almost everyone.
kevin_b_er 6y ago
Same reason people hate scalpers.
ikeboy 6y ago
Amazon got spooked with the series of articles that came out a few years ago after a hurricane, showing third party sellers selling water and toilet paper for hundreds of dollars. They implemented new policies so they wouldn't take a PR hit again.
asdf21 6y ago
It's an emotional decision, not a rational one.
duxup 6y ago
Generally high demand and higher prices are accepted. I don't think people mind that, and over the long term things work out. But if we're talking about short term demand for specific products like say medical masks or bottled water during extraordinary events, it's not clear that someone can ramp up production to fulfill demand ... nor that those items will go to the places they're needed such as a hospital and not just someone with a lot of cash on hand's closet... These short term extraordinary events don't seem to have the lead time for the market to work very well and the side effects are not considered desirable by many people.
- pitaj 6y ago
  The price mechanism is even more important in these cases though. Preventing it from adequately responding to changes in supply and demand only causes more shortages.
  - duxup 6y ago
    What response exactly? You can't build a bottled water factory overnight, it's not economically sensible to do so to fulfill a short demand.... and if you can't get the bottled water thee for some reason then it is even less able to respond to demand. Meanwhile buyers are not rational and those with extra money and will buy up huge amounts just to store "just in case" while places that need it won't get it. Pricing fluctuations there don't really change anything. With humans being the buyers it just doesn't work out.
    - nickpp 6y ago
      Let entrepreneurs worry about the response. They have more imagination and incentives than government bureaucrats anyway.
wtallis 6y ago
> I still don't understand why price gouging is not accepted. You participated in a thread here on the same topic earlier this year. Shouldn't you have a more nuanced understanding by now, with some acknowledgement of and maybe counter-argument for the numerous flaws in this reasoning that have already been pointed out?
- toohotatopic 6y ago
  That's my point, I should know better but I don't, even more so now after this thread. I am aware of the counter-arguments but the flaws in reasoning seem to be in the counter-arguments. To me, there is no argument that flat out disqualifies the idea of price gauging. My favourite counter-argument is that hoarders are not rational and that they miscalculate the point of greatest utility, which means they hoard the goods until new deliveries are available. That's a fair point, but there is no need to fix prices to resolve this. Instead, the government, or actually anybody, could offer an online market where people register their supply and demand and the time of availability. That would turn every hoarder into a rational market participant. Funny enough, Amazon could have been such a place. Related to hoarders is the argument that allocating resources by price is unfair towards the poor. That's true to a certain extend, but first of all, it ignores that being poor is a slow death anyway since they are already out-priced out of full medical care and healthy food anyway. The crisis just highlights the problem to the point that fewer people than usual are able to ignore it. When it comes to resources, then the poor aren't poor by choice but by handicaps. Fixing the prices leads to allocation by first come first serve. Will the poor be able to stand up early and catch the first bus into town to queue for hours until they catch one of those cheap toilet papers? Do they know at all about those shops or can't they leave their area, an area that doesn't have a shop that serves fresh produces (as in vegetables) and most likely will be last when it comes to the distribution of scarce goods. With free prices, goods are available at any time at any quantity. Poor people can buy the products between two shifts or let one person with a car buy it and distribute it. If they lose their job, they can even make a living in distributing goods from surplus areas to areas in need. I tend to believe that many who care for the poor just use them to defend their own turf. If the poor can get cheap products then so can the better-offs. The problem is that scarce goods are scarce. Somebody has to remain empty-handed. Will it be the disconnected poor person in whose name we keep prices low or will it be the better-off person who is caring for the poor person? The only time when price-fixing is useful is when there is plenty of supply but prices rise anyway. But how is this possible? It could happen when hoarders take supply off the market. But this can be mitigated by access to information as I have pointed out at the beginning. On the other hand, as has been pointed out, price fixing during WW2 has made petrol scarce. Furthermore, price fixing ignores that there is not only demand today but also tomorrow. They assume that producers increase production to the limits and that the overall supplies are fixed. As I have written in my comment, more resources are needed to start new production lines or haul in resources from other areas. That has been ignored in many comments. Another interesting argument is the baby formula argument: the baby has to be fed now. I guess you are familiar with the practices of a huge food company when it comes to free formula samples in Africa. Hook the mothers on formula, let their breasts dry up, and then make them pay. It's outrageous in Africa because the inability to buy the milk becomes existential which makes the problem visible. The same mechanism applies here, it's usually just not visible. Do you have to protect the parents from the company or the baby from those parents? If the life of your baby depends on a product, how is it possible that you don't have a comfortable buffer? Shifting the blame on market prices is a comfortable way of avoiding the decision that somebody else does not only have to take care of providing formula but the full care of the baby. That said, a caring society can also pool money and buy the formula for the family. The prices are high because there has to be formula not only today but also tomorrow. Forcing the sale today, without triggering new production through high prices, will lead to starving babies tomorrow. It punishes the person who has kept an eye on supply and demand whereas the crisis shows that more people are needed to keep an eye on supply chains. The hoarder has actually sent a signal up the production chain to start producing more formula a week or even a month before the formula was needed. That signal is the life saver for many babies because it makes more formula available. Finally I want to point out that my total account vote count has been reduced by at least 13 points from its peak. This could mean that my comment is bad but it could also mean that people punish me for rising the question. I don't mind. My comment has led to very nice arguments on both sides and I enjoy reading all answers. That said, there is a line of argument about which side is a religion and which side is a science. To me, the downvotes rhyme with the fixed price line of reasoning being a religion. Overall, I remain undecided. To me, fixing prices distorts the market most likely against the weakest players and free prices only work if there is enough information available. After all, there is no non-free market. As some comment has pointed out, life finds a way.
musicale 6y ago
There is little benefit to either the producer or the consumer when opportunistic resellers leverage technology to buy up popular supply-constrained products on amazon (for example) and immediately relist them at inflated prices before regular shoppers can buy them. "We're providing a great service that allows the wealthy to buy hard to find products, by buying up as many of them as possible before anyone else can, exacerbating shortages and driving up prices!"
- pitaj 6y ago
  They are only able to do this because the original sellers don't, usually because they are afraid of angering people at the best, or violating the law at the worst. If the original sellers raise prices in response to spikes in demand, there is less room for bad agents to take advantage of the situation.
  - KozmoNau7 6y ago
    By raising their prices, they also price those with less money to spend out of being able to afford essential items. The counter argument that "increased prices will entice manufacturers to increase production, driving down prices due to higher supply" is deeply flawed. People cannot wait several weeks for production to ramp up, if what they need is water, medical supplies and so on. The better way to do it is to apply anti-gouging regulations and purchase limits per customer.
  - musicale 6y ago
    > because they are afraid of angering people at the best, or violating the law at the worst Yeah, many original sellers (e.g. Nintendo, or toilet paper manufacturers) probably don't want to violate the law and/or alienate their customers. Sometimes musicians don't want to price many of their (younger and/or poorer) fans out of the ticket market. I thought it was kind of cool when Green Day (for example) had a show that only accepted cash at the door. (Though I guess the wealthy could still pay people to wait in line or give up their spot, I expect that would be frowned upon by the other fans waiting in line.) Fan clubs can also help genuine fans buy tickets for themselves at face value, though they are also often exploited by resellers.
pwdisswordfish2 6y ago
One alternative is to have sliding scale pricing, based on ability to pay. Those that can afford to pay the inflated prices can and should pay. Those who cannot afford the high prices should still have access to the essentials that are produced. This incentivizes increased production, allows for profit (reward) and limits hoarding. Burden-sharing with respect to financing the increased production.
- sokoloff 6y ago
  It also provides people with low apparent income an opportunity to resell.
rtkwe 6y ago
New producers take time to enter the market. Short term price gouging only serves to line the pockets of existing players and prices usually return to normal well before any new production comes on board. Also while we're waiting for the new production even when it does last a long time people are unable to get essential goods..
Gibbon1 6y ago
> I still don't understand why price gouging is not accepted. Because the idea of actually needing something for real and not having enough money to pay for it is outside your experience?
coronadisaster 6y ago
hopefully you never need to understand
peterwoerner 6y ago
I an astute business person, realize that a hurricane is about to hit. So I go to all the hardware stores and buy all the plywood, window covers and potable water. The hardware/grocery stores won't be able to get any more supplies until after the hurricane comes through. I resell the plywood and water for 4-10 times what I paid for it. Even though I don't sell out, I still make a hefty profit. More importantly many businesses and people aren't able to buy at my price and their house gets trashed because they couldn't afford my jacked up prices (or couldn't find me or wait in my line which was less efficient than home depots...) Moreover some people can't drink water for a couple of days while they are waiting for stores to restock. Thats the scenario price gouging laws are trying to stop. Unfortunately it also prevents things like temporarily increasing production or you from buying the plywood/water from town 8 hours away and selling it where is needed.
- toast0 6y ago
  > I an astute business person, realize that a hurricane is about to hit. So I go to all the hardware stores and buy all the plywood, window covers and potable water. The hardware/grocery stores won't be able to get any more supplies until after the hurricane comes through. I resell the plywood and water for 4-10 times what I paid for it. There's a couple good responses to this particular scenario. a) The managers of the hardware stores are also astute business people with access to hurricane forecasts and may charge you more if you buy around the time of a hurricane as they know their supplies are limited. b) other hurricane profiteers are likely to buy supplies from outside the path of the hurricane and bring them to the damaged areas to sell, if there's money in it. (this one doesn't work so well for a global crisis, but it may encourage people to warehouse goods that might be critical in a crisis)
- deleted 6y ago
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- nickpp 6y ago
  That only works for the first hurricane. The next one will have more "astute business persons". Then the next one even more, until the whole hurricane supply chain and it’s business people will be well prepared and ready for anything. Pretty much how your government was NOT ready and prepared for Covid-19.
rhizome 6y ago
There are all kinds of $1000+ books on Amazon because they're out of print with only one available used. I'm pretty sure it's a default feature of seller management software, automated as "juice the price if mine is the only one available."
- CamelCaseName 6y ago
  Indeed. These are called repricers, for those curious.
dragonwriter 6y ago
> Only high prices are an incentive for new producers to enter a market. States of emergency tend to be associated with abnormal market conditions which inhibit normal responses and may prevent entry of new sellers, and price gouging laws are, as a rule, tied to states of emergency (and often require active renewal based on new determination of need for price protection for longer emergencies; e.g., regardless of emergency duration, California’s price gouging law requires renewal of price protection at 30 day intervals.)
Amygaz 6y ago
Any examples? The main thing we see are individuals hoarding a product, setting up a shop to profiteer from an unfortunate and temporary event. The situation is temporary and it would be a lousy business model to start developing a "new" product based on the possibility of asking a high price for a short period of time. The incumbents increase in revenue comes from additional number of sales, not from the price hike. What happens when the demand surge goes down? Who is more likely to stay?
kerkeslager 6y ago
The problem is, in a market where price gouging is possible, there's an incentive to hoard which can outweigh the benefits of incentives for new producers to enter a market.
jariel 6y ago
"Only high prices are an incentive for new producers to enter a market." Price gouging is taking advantage of spikes in demand that happen much faster than production can adjust. This is the difference between short-run/long-run economics. There are tons of products that had a little blip for which production isn't going to adjust. The surpluses gained by gouging are usually far outweighed by the loss of trust in the relationships, which is why big companies with longer horizons tend not to do it. Almost every large retailer right now could be jacking up prices on a lot of things. They don't though. Prices for toilet paper etc. have largely remained the same.

rileymat2 6y ago

Generally, I agree with you. But, I am not sure if a momentary shortage is enough to create this incentive years out, when the price will likely normalize. The other reason for high prices beyond inducing more sellers is to be a form of rationing based on ability to pay. And in a crisis with necessities people do not like this method emotionally and prefer a more democratic method.

WalterBright 6y ago
> a form of rationing based on ability to pay That is not rationing.
- rileymat2 6y ago
  There is a pedantic argument to be made about the exact definition of rationing, but "rationing based on the ability to pay" as a phrase is a very common description or turn of phrase, Google confirms this.
  - WalterBright 6y ago
    That isn't how the word is defined. Google the definition of rationing :-) People misuse language all the time, such as using "literally" for emphasis rather than description, but when talking economics one should stick with what the economic terms actually mean. For a more relevant example, "free markets" do not mean you can pickup things at the market at no cost.
    - vageli 6y ago
      > That isn't how the word is defined. Google the definition of rationing :-) I did as you suggested and got this: > allow someone to have only (a fixed amount of a certain commodity). So the definition does not specify the function by which resources are distributed. The "fixed amount" can be a schedule based on income and not violate the definition.
      - WalterBright 6y ago
        Um, a free market does not "allow" someone to have only a "fixed" amount. Trying to torture the definitions of words to make this work to save a rhetorical point is not going to work with me.
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      - sokoloff 6y ago
        Wait? Did you really just say that a “fixed amount” is equivalent to what amounts to linear function of your income?
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        vageli 6y ago
        I guess I took the fixed value to be the function, and not the... value. I see my misunderstanding now.

vmception 6y ago

Price gouging is used in multiple contexts at once to conflate multiple separate issues. This article is just about a private company with its own internal company policies sanctioning sellers on their platform for higher than average prices, and sellers circumventing that. So not really about any legal restrictions, this is an issue with Amazon and not any discussion about the state curbing temporarily market signals, which I think your comment would be more about.

dheera 6y ago

The problem with price gouging is that it opens doors to people hoarding supplies and reselling them at higher cost. Sitting in an armchair reselling things at a higher price is an inefficient allocation of resources during a pandemic, prevents people in need from being able to access those resources, and is an all-around waste of someone's two hands reselling things when they could be using those hands to directly do social good instead. It doesn't help the world at all if only rich people are able to afford certain things like disinfectant and PPE; the virus is far more effectively controlled if everyone, no matter their socioeconomic class, has access to these things.

goodside 6y ago
While free-market pricing may create an incentive to hoard for resale, price ceilings also create an incentive to hoard for personal use. If I’m on the fence about whether I might need an N95 mask soon, and I learn they’re being sold at below-market prices due to ceilings, I’ll hoard because I’m worried they soon won’t be available at any price. I’m motivated to forecast the duration of the shortage and stockpile what I think I might need. If I overestimate, I don’t turn into a reseller, I just swallow the storage cost until I use them. When someone hoards for resale they can at least liquidate their oversupply to other customers, even if not at the price they hoped for. Prices don’t just discriminate between rich and poor, they discriminate between desperate needs and casual wants. Everyone agrees it’s a good thing for the poor to have access to things they desperately need, but price controls also ensure that wealthy people can buy lots of the available supply on a whim. Someone with a mold remediation business might be willing to stockpile thousands of N95’s if available at pre-COVID prices — storage is cheap, and they’ll be used eventually. But if they’re being sold at a 5x the normal price, they’re motivated to stretch their current supply through re-use and buy only what they immediately need. That’s why price controls and rationing should always happen at the same time, and the severity of price controls is constrained by the effectiveness of rationing. If you can easily defeat rationing (e.g. ordering from multiple online stores) it’s as though it doesn’t exist. In those cases, market prices make more sense for ensuring availability.
- erik_seaberg 6y ago

mschuster91 6y ago

> I still don't understand why price gouging is not accepted. It's generally, libertarian/ancap circles aside, viewed as immoral to exploit the essential needs of people; also it incentivizes hoarding which puts the availability of critical goods even more at risk. We have seen this in action with loo rolls, hand sanitizer and non-perishable food in the recent crisis, and with people actually getting punished for it: https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html https://www.nytimes.com/2020/03/14/technology/coronavirus-pu...

neilparikh 6y ago
I think you’ve got it backwards. The only reason people were able to hoard so many units of hand sanitizer etc. was because stores sold it for too low of a price (ie. the store didn’t “price gouge”).
- zhoujianfu 6y ago
  Exactly, if there are no price gouging laws, the increase in prices will “trickle up” to the manufacturers, who will then increase production, thereby lowering prices. With price gouging laws, an increase in demand is not allowed to increase prices, so there’s no incentive to increase supply, and the result is shortages.
  - KozmoNau7 6y ago
    The incentive to increase production supply is the ability to sell more products, which is decoupled from the ability to sell the same amount at higher prices.
WalterBright 6y ago
Rationing and price fixing cause hoarding. People hoard because they fear not being able to buy something in the future, which happens with the shortages caused by rationing and price fixing. For example, back in the 70's with price controls on gas, people hoarded gas. All that nonsense stopped literally overnight when Reagan repealed all gas and allocation controls.

naravara 6y ago

>I still don't understand why price gouging is not accepted. Only high prices are an incentive for new producers to enter a market. Or rather: high prices promise huge return on investments so that investors allocate money for producers to open new production facilities. Price gouging only applies in circumstances where supply is fixed for all intents and purposes, so it's purely an act of taking advantage of people in a crisis because you can. Anyone who can ramp up production is already ramping up as much as they can. In circumstances where it is accepted, it actually leads to bigger shortages since people benefit from hoarding.

gowld 6y ago
This is true in theory. In practice, as has been seen with Covid PPE, the price "gouging" threshold is sometimes set below the cost of production (due to fixed startup capital costs), preventing production. This paradox is severe for products with low marginal cost but high fixed cost, which is most things nowadays thanks to modern economy of scale. Price laws are per unit, but peoduction costs are amortized across a whole production lifetime, and the difference between "X units per month for 10 years" is quite different from "10X units per month for 1 month" is substantial.
- naravara 6y ago
  >n practice, as has been seen with Covid PPE, the price "gouging" threshold is sometimes set below the cost of production (due to fixed startup capital costs), preventing production. If it was actually socially important you could just. . . pay for it out of the public funds as a form of emergency assistance or social insurance. Why enable retailers to gouge and exploit the most vulnerable people when you could just have everyone pitch in to fill the gap?
- pgwhalen 6y ago
  Any source on that happening with Covid PPE? I’d love to read about it.
mamon 6y ago
When supply is fixed the price gouging serves as an important mechanism promoting efficient use of it. If a 30 oz bottle of hand sanitizer costs $50 then everyone would ask themselves: "Do I REALLY need 5 bottles of it?"

PeterisP 6y ago

Price gouging is accepted normally. It's just temporarily prohibited for the duration of an emergency for the products related to that emergency. Most emergencies are sufficiently short-term that they don't meaningfully reduce incentives for new producers to enter a market, because there's no time to adapt. E.g. an hour before a hurricane strikes, the price of water bottles and gas won't motivate new producers to enter a market, but there's a social interest to keep these prices stable. The main problem here is a prolonged "emergency with default rules" that's happening now, because the default rules are targeted at short emergenices. It's reasonable to announce an emergency now and figure out the details later; but now it's been many months and the "later" should have already arrived with specific "pandemic laws" replacing the generic emergency laws, but that's been problematic in many areas.

codys 6y ago
Yes, it could make a lot of sense to enact price control boards like those of the WW2 era to allow some level of price changes without allowing price changes to the extent that it is harmful to the national interest.
- WalterBright 6y ago
  WW2 gas rationing produced drive-by shootings. (There was quite a black market of gas that sprung up due to rationing.)
  - erik_seaberg 6y ago
    WW2 wage controls prompted employer-provided health insurance, a terrible idea we're stuck with 75 years later.
Jeremy1026 6y ago
> It's just temporarily prohibited for the duration of an emergency for the products related to that emergency. How is a Nintendo Switch related to the COVID-19 emergency? If it counts because "people are bored" then what wouldn't fall under related to COVID-19?

Analemma_ 6y ago

Other people are doing a good job pointing out the theoretical and moral objections to this, but let me also add a tactical one. Libertarians, if you want to swing more people around to your way of thinking, let this issue go. Price gouging during emergencies is not the hill you want to die on: it pisses people off at deep, fundamental level, and validates the worst stereotypes of libertarians as people eager to sacrifice (other people's) lives on the altar of the free market. Pick your battles and don't push on this one.

neilparikh 6y ago
> libertarians as people eager to sacrifice (other people's) lives on the altar of the free market. I’m not defending price gouging (not informed enough to make a complete decision), but you should consider that libertarians genuinely believe that allowing “price gouging” (ie. having no price controls) will lead to better outcomes for every one, including more lives saved, rather than constructing a straw man about the free market.
- e5india 6y ago
  > libertarians genuinely believe This is fundamentally the problem though isn't it? Belief is a matter of faith, and so regardless of how much experience we have with these situations no amount of evidence is going to sway them.
  - nickpp 6y ago
    Proof that free markets work is everywhere: pretty much any useful, successful product you are using. Prof that controlled marked fail is also everywhere: pretty much any government-run service. Almost like Economy is a science: it keeps working even if you don’t believe in it.
    - e5india 6y ago
      This comment is exactly what I'm talking about. The free market theory, if we want to call it that, has always also carried the implicit 'in the long run' and this is what we're quibbling about. Natural disasters, pandemics etc are short term conditions that don't allow enough time for the normal market mechanics to come into play. This is the argument essentially. Your belief in the markets is such that you cannot even allow for any instance where the free market is an imperfect solution and any kind of critique means that the person is anti market. I am not anti market. I simply do not consider the free markets some infallible system that works in every context. This is not some rhetorical device meant to sneak in Socialism. It is in fact possible to recognize the efficacy of the markets, over the long run, but still recognize that there are contexts that require some amount of intervention. I want to also comment on the following: "even if you don't believe in it" I don't consider this something to believe in or not believe in. It's just a system, a tool, it has strengths and it has weaknesses. Sometimes it's the right approach, sometimes it's not.

seganddr 6y ago

Allowing price gouging encourages speculative hoarding which makes markets less stable and less fair. For essential items this is very undesirable for almost everyone.

kevin_b_er 6y ago

Same reason people hate scalpers.

ikeboy 6y ago

Amazon got spooked with the series of articles that came out a few years ago after a hurricane, showing third party sellers selling water and toilet paper for hundreds of dollars. They implemented new policies so they wouldn't take a PR hit again.

asdf21 6y ago

It's an emotional decision, not a rational one.

duxup 6y ago

Generally high demand and higher prices are accepted. I don't think people mind that, and over the long term things work out. But if we're talking about short term demand for specific products like say medical masks or bottled water during extraordinary events, it's not clear that someone can ramp up production to fulfill demand ... nor that those items will go to the places they're needed such as a hospital and not just someone with a lot of cash on hand's closet... These short term extraordinary events don't seem to have the lead time for the market to work very well and the side effects are not considered desirable by many people.

pitaj 6y ago
The price mechanism is even more important in these cases though. Preventing it from adequately responding to changes in supply and demand only causes more shortages.
- duxup 6y ago
  What response exactly? You can't build a bottled water factory overnight, it's not economically sensible to do so to fulfill a short demand.... and if you can't get the bottled water thee for some reason then it is even less able to respond to demand. Meanwhile buyers are not rational and those with extra money and will buy up huge amounts just to store "just in case" while places that need it won't get it. Pricing fluctuations there don't really change anything. With humans being the buyers it just doesn't work out.
  - nickpp 6y ago
    Let entrepreneurs worry about the response. They have more imagination and incentives than government bureaucrats anyway.

wtallis 6y ago

> I still don't understand why price gouging is not accepted. You participated in a thread here on the same topic earlier this year. Shouldn't you have a more nuanced understanding by now, with some acknowledgement of and maybe counter-argument for the numerous flaws in this reasoning that have already been pointed out?

toohotatopic 6y ago
That's my point, I should know better but I don't, even more so now after this thread. I am aware of the counter-arguments but the flaws in reasoning seem to be in the counter-arguments. To me, there is no argument that flat out disqualifies the idea of price gauging. My favourite counter-argument is that hoarders are not rational and that they miscalculate the point of greatest utility, which means they hoard the goods until new deliveries are available. That's a fair point, but there is no need to fix prices to resolve this. Instead, the government, or actually anybody, could offer an online market where people register their supply and demand and the time of availability. That would turn every hoarder into a rational market participant. Funny enough, Amazon could have been such a place. Related to hoarders is the argument that allocating resources by price is unfair towards the poor. That's true to a certain extend, but first of all, it ignores that being poor is a slow death anyway since they are already out-priced out of full medical care and healthy food anyway. The crisis just highlights the problem to the point that fewer people than usual are able to ignore it. When it comes to resources, then the poor aren't poor by choice but by handicaps. Fixing the prices leads to allocation by first come first serve. Will the poor be able to stand up early and catch the first bus into town to queue for hours until they catch one of those cheap toilet papers? Do they know at all about those shops or can't they leave their area, an area that doesn't have a shop that serves fresh produces (as in vegetables) and most likely will be last when it comes to the distribution of scarce goods. With free prices, goods are available at any time at any quantity. Poor people can buy the products between two shifts or let one person with a car buy it and distribute it. If they lose their job, they can even make a living in distributing goods from surplus areas to areas in need. I tend to believe that many who care for the poor just use them to defend their own turf. If the poor can get cheap products then so can the better-offs. The problem is that scarce goods are scarce. Somebody has to remain empty-handed. Will it be the disconnected poor person in whose name we keep prices low or will it be the better-off person who is caring for the poor person? The only time when price-fixing is useful is when there is plenty of supply but prices rise anyway. But how is this possible? It could happen when hoarders take supply off the market. But this can be mitigated by access to information as I have pointed out at the beginning. On the other hand, as has been pointed out, price fixing during WW2 has made petrol scarce. Furthermore, price fixing ignores that there is not only demand today but also tomorrow. They assume that producers increase production to the limits and that the overall supplies are fixed. As I have written in my comment, more resources are needed to start new production lines or haul in resources from other areas. That has been ignored in many comments. Another interesting argument is the baby formula argument: the baby has to be fed now. I guess you are familiar with the practices of a huge food company when it comes to free formula samples in Africa. Hook the mothers on formula, let their breasts dry up, and then make them pay. It's outrageous in Africa because the inability to buy the milk becomes existential which makes the problem visible. The same mechanism applies here, it's usually just not visible. Do you have to protect the parents from the company or the baby from those parents? If the life of your baby depends on a product, how is it possible that you don't have a comfortable buffer? Shifting the blame on market prices is a comfortable way of avoiding the decision that somebody else does not only have to take care of providing formula but the full care of the baby. That said, a caring society can also pool money and buy the formula for the family. The prices are high because there has to be formula not only today but also tomorrow. Forcing the sale today, without triggering new production through high prices, will lead to starving babies tomorrow. It punishes the person who has kept an eye on supply and demand whereas the crisis shows that more people are needed to keep an eye on supply chains. The hoarder has actually sent a signal up the production chain to start producing more formula a week or even a month before the formula was needed. That signal is the life saver for many babies because it makes more formula available. Finally I want to point out that my total account vote count has been reduced by at least 13 points from its peak. This could mean that my comment is bad but it could also mean that people punish me for rising the question. I don't mind. My comment has led to very nice arguments on both sides and I enjoy reading all answers. That said, there is a line of argument about which side is a religion and which side is a science. To me, the downvotes rhyme with the fixed price line of reasoning being a religion. Overall, I remain undecided. To me, fixing prices distorts the market most likely against the weakest players and free prices only work if there is enough information available. After all, there is no non-free market. As some comment has pointed out, life finds a way.

musicale 6y ago

There is little benefit to either the producer or the consumer when opportunistic resellers leverage technology to buy up popular supply-constrained products on amazon (for example) and immediately relist them at inflated prices before regular shoppers can buy them. "We're providing a great service that allows the wealthy to buy hard to find products, by buying up as many of them as possible before anyone else can, exacerbating shortages and driving up prices!"

pitaj 6y ago
They are only able to do this because the original sellers don't, usually because they are afraid of angering people at the best, or violating the law at the worst. If the original sellers raise prices in response to spikes in demand, there is less room for bad agents to take advantage of the situation.
- KozmoNau7 6y ago
  By raising their prices, they also price those with less money to spend out of being able to afford essential items. The counter argument that "increased prices will entice manufacturers to increase production, driving down prices due to higher supply" is deeply flawed. People cannot wait several weeks for production to ramp up, if what they need is water, medical supplies and so on. The better way to do it is to apply anti-gouging regulations and purchase limits per customer.
- musicale 6y ago
  > because they are afraid of angering people at the best, or violating the law at the worst Yeah, many original sellers (e.g. Nintendo, or toilet paper manufacturers) probably don't want to violate the law and/or alienate their customers. Sometimes musicians don't want to price many of their (younger and/or poorer) fans out of the ticket market. I thought it was kind of cool when Green Day (for example) had a show that only accepted cash at the door. (Though I guess the wealthy could still pay people to wait in line or give up their spot, I expect that would be frowned upon by the other fans waiting in line.) Fan clubs can also help genuine fans buy tickets for themselves at face value, though they are also often exploited by resellers.

pwdisswordfish2 6y ago

One alternative is to have sliding scale pricing, based on ability to pay. Those that can afford to pay the inflated prices can and should pay. Those who cannot afford the high prices should still have access to the essentials that are produced. This incentivizes increased production, allows for profit (reward) and limits hoarding. Burden-sharing with respect to financing the increased production.

sokoloff 6y ago
It also provides people with low apparent income an opportunity to resell.

rtkwe 6y ago

New producers take time to enter the market. Short term price gouging only serves to line the pockets of existing players and prices usually return to normal well before any new production comes on board. Also while we're waiting for the new production even when it does last a long time people are unable to get essential goods..

Gibbon1 6y ago

> I still don't understand why price gouging is not accepted. Because the idea of actually needing something for real and not having enough money to pay for it is outside your experience?

coronadisaster 6y ago

hopefully you never need to understand

peterwoerner 6y ago

I an astute business person, realize that a hurricane is about to hit. So I go to all the hardware stores and buy all the plywood, window covers and potable water. The hardware/grocery stores won't be able to get any more supplies until after the hurricane comes through. I resell the plywood and water for 4-10 times what I paid for it. Even though I don't sell out, I still make a hefty profit. More importantly many businesses and people aren't able to buy at my price and their house gets trashed because they couldn't afford my jacked up prices (or couldn't find me or wait in my line which was less efficient than home depots...) Moreover some people can't drink water for a couple of days while they are waiting for stores to restock. Thats the scenario price gouging laws are trying to stop. Unfortunately it also prevents things like temporarily increasing production or you from buying the plywood/water from town 8 hours away and selling it where is needed.

toast0 6y ago
> I an astute business person, realize that a hurricane is about to hit. So I go to all the hardware stores and buy all the plywood, window covers and potable water. The hardware/grocery stores won't be able to get any more supplies until after the hurricane comes through. I resell the plywood and water for 4-10 times what I paid for it. There's a couple good responses to this particular scenario. a) The managers of the hardware stores are also astute business people with access to hurricane forecasts and may charge you more if you buy around the time of a hurricane as they know their supplies are limited. b) other hurricane profiteers are likely to buy supplies from outside the path of the hurricane and bring them to the damaged areas to sell, if there's money in it. (this one doesn't work so well for a global crisis, but it may encourage people to warehouse goods that might be critical in a crisis)
deleted 6y ago
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nickpp 6y ago
That only works for the first hurricane. The next one will have more "astute business persons". Then the next one even more, until the whole hurricane supply chain and it’s business people will be well prepared and ready for anything. Pretty much how your government was NOT ready and prepared for Covid-19.

rhizome 6y ago

There are all kinds of $1000+ books on Amazon because they're out of print with only one available used. I'm pretty sure it's a default feature of seller management software, automated as "juice the price if mine is the only one available."

CamelCaseName 6y ago
Indeed. These are called repricers, for those curious.

dragonwriter 6y ago

> Only high prices are an incentive for new producers to enter a market. States of emergency tend to be associated with abnormal market conditions which inhibit normal responses and may prevent entry of new sellers, and price gouging laws are, as a rule, tied to states of emergency (and often require active renewal based on new determination of need for price protection for longer emergencies; e.g., regardless of emergency duration, California’s price gouging law requires renewal of price protection at 30 day intervals.)

Amygaz 6y ago

Any examples? The main thing we see are individuals hoarding a product, setting up a shop to profiteer from an unfortunate and temporary event. The situation is temporary and it would be a lousy business model to start developing a "new" product based on the possibility of asking a high price for a short period of time. The incumbents increase in revenue comes from additional number of sales, not from the price hike. What happens when the demand surge goes down? Who is more likely to stay?

kerkeslager 6y ago

The problem is, in a market where price gouging is possible, there's an incentive to hoard which can outweigh the benefits of incentives for new producers to enter a market.

jariel 6y ago

"Only high prices are an incentive for new producers to enter a market." Price gouging is taking advantage of spikes in demand that happen much faster than production can adjust. This is the difference between short-run/long-run economics. There are tons of products that had a little blip for which production isn't going to adjust. The surpluses gained by gouging are usually far outweighed by the loss of trust in the relationships, which is why big companies with longer horizons tend not to do it. Almost every large retailer right now could be jacking up prices on a lot of things. They don't though. Prices for toilet paper etc. have largely remained the same.