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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 ab

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
Price controls are the reason no retailer had extra warehouses full of toilet paper and hand sanitizer. They can only make short-term decisions when we don't allow long bets to pay for themselves.
- goodside 6y ago
  Toilet paper also has relatively high storage costs and low shipping costs compared to other goods, which skews things. It obviously doesn’t spoil, but it’s physically large for how cheap it is and presents a fire hazard in bulk quantities. A typical consumer could actually afford to fill their home with stockpiled toilet paper until it becomes unlivable if they really wanted to, which isn’t true of most consumer goods. There’s also subtleties related to the segregation of consumer and commercial toilet paper markets.
  - sokoloff 6y ago
    TP has relatively high shipping cost, especially as compared to its value. Dimensional pricing (charging by volume) is what kills you trying to ship TP.
    - goodside 6y ago
      For consumers you’re definitely right, but I don’t think this is true when buying by the truckload. Paper manufacturers produce both very high-density products (office paper) and very low-density products (toilet paper). Office paper is so dense that you have to ship it in trucks that are half-empty due to safety regulations on truck weight, so I’d expect a customer that needs both products can receive toilet paper in the same truck without much marginal increase in fuel consumption. I don’t work in the industry though, so I admit I’m mostly speculating.
- ghaff 6y ago
  Do you seriously believe that Scott Paper would keep warehouses of TP laying around if only they knew that they could charge $5 a roll if there were a shortage for some reason? Honestly, large manufacturers/retailers are probably the least likely to price gouge because, laws aside, any extra profit that, say, Home Depot can make by selling snow shovels for $50 before an unexpected early blizzard is 1.) Trivial for their overall bottom line and 2.) Likely to result in a very expensive reputational hit.
  - xyzzyz 6y ago
    Correct. The result is of course that after a blizzard, if you didn't line up in front of Home Depot at 4 AM, you have no chance to get a snow shovel.
    - sokoloff 6y ago
      https://aliimmam.com/2013/11/03/i-want-to-be-just-like-mommy/ https://aliimmam.com/2013/11/03/i-want-to-be-just-like-mommy...
WalterBright 6y ago
People don't hoard when there's a free market.
- edmundsauto 6y ago
  People hoard when there are shortages and/or urgent need and/or they read about it in the paper and/or they think they can make a quick buck. Nothing about "free market" precludes these conditions.
  - WalterBright 6y ago
    Free markets don't have shortages. For example, why don't we have shortages of beef and chicken, while fish are threatened with extinction? For another, during the California and Yukon gold rushes, men rushed to the gold fields. Women rushed, too, but not to mine the earth for gold, but to mine the men for their gold.
    - JoeAltmaier 6y ago
      That sounds naïve. What do we call it, when demand outstrips supply? A shortage. Maybe temporary, maybe a bubble, but real.
      - nickpp 6y ago
        The demand for yachts at 1$ apiece will always outstrip supply. Do we have a yacht shortage then? No, because yachts cost much more than 1$ apiece. There are no shortages in free markets.
        TeMPOraL 6y ago
        That's getting absurd. The supply of a widget that I just made of paperclip at $1M apiece will never outstrip supply, even though there's just one of such widgets, because there's exactly zero demand at that price. You can define any shortage out of existence this way. Perhaps your point is that, on a free market, the supply and demand will always meet at the right price point. Yes, that works long-term. Short-term, it doesn't, because sellers have every reason to look at the first and second derivative of the price - to hold off selling until they believe the demand for a product is about to reach its peak - and only then actually sell out their supply. This of course will cause the prices to go down, but by that time, the emergency may just be over, and a lot of people who needed the product then will have suffered and/or died. The way I see it, this is literally the same mechanism stock trading is based on, and yet nobody here seems to have a problem understanding it there. Supply and demand, right? So if I know the demand tomorrow will be larger than today, I'll hold off selling my stocks, and I'll hold them until the point I see demand starting to fall back down.

erik_seaberg 6y ago

Price controls are the reason no retailer had extra warehouses full of toilet paper and hand sanitizer. They can only make short-term decisions when we don't allow long bets to pay for themselves.

goodside 6y ago
Toilet paper also has relatively high storage costs and low shipping costs compared to other goods, which skews things. It obviously doesn’t spoil, but it’s physically large for how cheap it is and presents a fire hazard in bulk quantities. A typical consumer could actually afford to fill their home with stockpiled toilet paper until it becomes unlivable if they really wanted to, which isn’t true of most consumer goods. There’s also subtleties related to the segregation of consumer and commercial toilet paper markets.
- sokoloff 6y ago
  TP has relatively high shipping cost, especially as compared to its value. Dimensional pricing (charging by volume) is what kills you trying to ship TP.
  - goodside 6y ago
    For consumers you’re definitely right, but I don’t think this is true when buying by the truckload. Paper manufacturers produce both very high-density products (office paper) and very low-density products (toilet paper). Office paper is so dense that you have to ship it in trucks that are half-empty due to safety regulations on truck weight, so I’d expect a customer that needs both products can receive toilet paper in the same truck without much marginal increase in fuel consumption. I don’t work in the industry though, so I admit I’m mostly speculating.
ghaff 6y ago
Do you seriously believe that Scott Paper would keep warehouses of TP laying around if only they knew that they could charge $5 a roll if there were a shortage for some reason? Honestly, large manufacturers/retailers are probably the least likely to price gouge because, laws aside, any extra profit that, say, Home Depot can make by selling snow shovels for $50 before an unexpected early blizzard is 1.) Trivial for their overall bottom line and 2.) Likely to result in a very expensive reputational hit.
- xyzzyz 6y ago
  Correct. The result is of course that after a blizzard, if you didn't line up in front of Home Depot at 4 AM, you have no chance to get a snow shovel.
  - sokoloff 6y ago
    https://aliimmam.com/2013/11/03/i-want-to-be-just-like-mommy/ https://aliimmam.com/2013/11/03/i-want-to-be-just-like-mommy...

WalterBright 6y ago

People don't hoard when there's a free market.

edmundsauto 6y ago
People hoard when there are shortages and/or urgent need and/or they read about it in the paper and/or they think they can make a quick buck. Nothing about "free market" precludes these conditions.
- WalterBright 6y ago
  Free markets don't have shortages. For example, why don't we have shortages of beef and chicken, while fish are threatened with extinction? For another, during the California and Yukon gold rushes, men rushed to the gold fields. Women rushed, too, but not to mine the earth for gold, but to mine the men for their gold.
  - JoeAltmaier 6y ago
    That sounds naïve. What do we call it, when demand outstrips supply? A shortage. Maybe temporary, maybe a bubble, but real.
    - nickpp 6y ago
      The demand for yachts at 1$ apiece will always outstrip supply. Do we have a yacht shortage then? No, because yachts cost much more than 1$ apiece. There are no shortages in free markets.
      - TeMPOraL 6y ago
        That's getting absurd. The supply of a widget that I just made of paperclip at $1M apiece will never outstrip supply, even though there's just one of such widgets, because there's exactly zero demand at that price. You can define any shortage out of existence this way. Perhaps your point is that, on a free market, the supply and demand will always meet at the right price point. Yes, that works long-term. Short-term, it doesn't, because sellers have every reason to look at the first and second derivative of the price - to hold off selling until they believe the demand for a product is about to reach its peak - and only then actually sell out their supply. This of course will cause the prices to go down, but by that time, the emergency may just be over, and a lot of people who needed the product then will have suffered and/or died. The way I see it, this is literally the same mechanism stock trading is based on, and yet nobody here seems to have a problem understanding it there. Supply and demand, right? So if I know the demand tomorrow will be larger than today, I'll hold off selling my stocks, and I'll hold them until the point I see demand starting to fall back down.