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> You're basically claiming that supply&demand doesn't work. Yes, most economists would agree that there are cases when supply and demand do not allocate resou

> You're basically claiming that supply&demand doesn't work. Yes, most economists would agree that there are cases when supply and demand do not allocate resources most efficiently. The economics 101 idea your repeating requires that all actors be rational. We know that isn't the case, both in simple cases like this one and in more complex cases, like those that led to the financial crisis. As soon as you introduce irrational actors, it isn't unreasonable for governments to step in and prevent irrational actors from harming the otherwise reasonable processes. Price gouging, in fact, encourages this kind of irrational behavior. A rational actor would have realized that we weren't going to run out of toilet paper, and that stocking up on hundreds of rolls wasn't helpful. A rational actor would have continued buying toilet paper at their normal rate, maybe purchasing an extra roll or two. The people who bought pallets of toilet paper were not acting rationally. And to prevent the issues irrational actors cause, regulations like per-customer limits lead to better allocation of resources. Society as a whole is better off when everyone has access to toilet paper (or PPE or hand sanitizer). Reducing access only to those who are willing to pay 100x the normal price is not rational. It is a failure of the market.

WalterBright 6y ago
> The economics 101 idea your repeating requires that all actors be rational. It does not require people to be rational. I don't know who you took Econ 101 from, but you should ask for your money back. What it does do is provide incentives for rational behavior. > Reducing access only to those who are willing to pay 100x the normal price is not rational. It is a failure of the market. It does not reduce access at all. A sanitizer hoard only has value if it can be sold to people who use it. The hoarder would also know that supply will increase, and he'll have to sell it fast in order to realize a profit. Furthermore, the higher prices encourage only the best use of the sanitizers are made, and encourage more supply.
- joshuamorton 6y ago
  > What it does do is provide incentives for rational behavior. Yes, and when/if enough actors do act irrationally, the efficient allocation of resources breaks down. > A sanitizer hoard only has value if it can be sold to people who use it. The hoarder would also know that supply will increase, and he'll have to sell it fast in order to realize a profit. Only if individuals are acting rationally. If I am panicking due to a pandemic that I believe hand sanitizer will protect me from, I will be willing to purchase a lot for personal consumption. If enough people do this, it prevents others who have need from getting their own hand sanitizer. That is not "where they are needed the most". A middle class family who can afford to stay home does not need hand sanitizer more than a frontline worker or a hospital, in fact it's likely better for that family if the frontline worker gets the sanitizer instead. But acting in a panic, and acting irrationally, one can purchase enough hand sanitizer that the price rises enough to prevent those with greater need from accessing it. > Furthermore, the higher prices encourage only the best use of the sanitizers are made Except they don't, as we just demonstrated. Hospitals and frontline workers are rationally the best places for a limited supply of hand sanitizer. Increasing the prices does not result in those people getting the hand sanitizer, but instead it results in wealthy individuals getting it. Hospitals don't have the funding to compete on price with panicked upper class people who believe that hand sanitizer will save their lives. Purchasing quotas are a much better solution, since there is value in as many people as possible having some hand sanitizer for personal use. And if you institute quotas, you don't need to increase price to limit demand, so the only reason to increase price would be to profiteer.
- TeMPOraL 6y ago
  > The hoarder would also know that supply will increase ... eventually. A smart hoarder will just keep their hoard until extra manufacturing is about to start, and dump their hoard then. Because of that, the sanitizer is the least available precisely at the time it's needed the most.
  - WalterBright 6y ago
    When it is "needed the most" is when the hoarder will sell it, because that is when he makes the most profit.
    - TeMPOraL 6y ago
      Not when the need is growing with the crisis. To use an absurdly simplified example, imagine if access to sanitizer reduces effective reproduction number (Re) of the virus, in a way proportional to the amount of people that have this access. Every day the virus spreads, the probability of an individual getting infected grows, so the need to have the sanitizer grows as well. When that sanitizer is most needed is at the very, very beginning - where it could halt a pandemic in its tracks. But the "maximum need" as perceived by the hoarders will occur only at the point the pandemic is about to burn itself out anyway. Which is precisely when it'll do the least good. A savvy hoarder will sell then, and make a hefty profit. A less savvy hoarder will mistime that point, sell late, and make a smaller profit.
      - toohotatopic 6y ago
        To me, this is the best argument against price gauging. That said, I think it still doesn't matter because 1) You can substitute hand sanitizer with soap. In a way, hand sanitizer is a luxury item. 2) There is no monopoly on hand sanitizer. There are always less-savvy hoarders who sell their products so manufacturing the pandemic by hoarding doesn't work 3) Preventing the early spread of the virus requires state-level coordination to be successful or else the virus spreads anyway. So for the low reproduction number scenario, let's assume massive state intervention. In that case, containment is very likely and there is no future excessive demand for hand sanitizer, thus even savvy hoarders will sell their stock early on.

WalterBright 6y ago

> The economics 101 idea your repeating requires that all actors be rational. It does not require people to be rational. I don't know who you took Econ 101 from, but you should ask for your money back. What it does do is provide incentives for rational behavior. > Reducing access only to those who are willing to pay 100x the normal price is not rational. It is a failure of the market. It does not reduce access at all. A sanitizer hoard only has value if it can be sold to people who use it. The hoarder would also know that supply will increase, and he'll have to sell it fast in order to realize a profit. Furthermore, the higher prices encourage only the best use of the sanitizers are made, and encourage more supply.

joshuamorton 6y ago
> What it does do is provide incentives for rational behavior. Yes, and when/if enough actors do act irrationally, the efficient allocation of resources breaks down. > A sanitizer hoard only has value if it can be sold to people who use it. The hoarder would also know that supply will increase, and he'll have to sell it fast in order to realize a profit. Only if individuals are acting rationally. If I am panicking due to a pandemic that I believe hand sanitizer will protect me from, I will be willing to purchase a lot for personal consumption. If enough people do this, it prevents others who have need from getting their own hand sanitizer. That is not "where they are needed the most". A middle class family who can afford to stay home does not need hand sanitizer more than a frontline worker or a hospital, in fact it's likely better for that family if the frontline worker gets the sanitizer instead. But acting in a panic, and acting irrationally, one can purchase enough hand sanitizer that the price rises enough to prevent those with greater need from accessing it. > Furthermore, the higher prices encourage only the best use of the sanitizers are made Except they don't, as we just demonstrated. Hospitals and frontline workers are rationally the best places for a limited supply of hand sanitizer. Increasing the prices does not result in those people getting the hand sanitizer, but instead it results in wealthy individuals getting it. Hospitals don't have the funding to compete on price with panicked upper class people who believe that hand sanitizer will save their lives. Purchasing quotas are a much better solution, since there is value in as many people as possible having some hand sanitizer for personal use. And if you institute quotas, you don't need to increase price to limit demand, so the only reason to increase price would be to profiteer.
TeMPOraL 6y ago
> The hoarder would also know that supply will increase ... eventually. A smart hoarder will just keep their hoard until extra manufacturing is about to start, and dump their hoard then. Because of that, the sanitizer is the least available precisely at the time it's needed the most.
- WalterBright 6y ago
  When it is "needed the most" is when the hoarder will sell it, because that is when he makes the most profit.
  - TeMPOraL 6y ago
    Not when the need is growing with the crisis. To use an absurdly simplified example, imagine if access to sanitizer reduces effective reproduction number (Re) of the virus, in a way proportional to the amount of people that have this access. Every day the virus spreads, the probability of an individual getting infected grows, so the need to have the sanitizer grows as well. When that sanitizer is most needed is at the very, very beginning - where it could halt a pandemic in its tracks. But the "maximum need" as perceived by the hoarders will occur only at the point the pandemic is about to burn itself out anyway. Which is precisely when it'll do the least good. A savvy hoarder will sell then, and make a hefty profit. A less savvy hoarder will mistime that point, sell late, and make a smaller profit.
    - toohotatopic 6y ago
      To me, this is the best argument against price gauging. That said, I think it still doesn't matter because 1) You can substitute hand sanitizer with soap. In a way, hand sanitizer is a luxury item. 2) There is no monopoly on hand sanitizer. There are always less-savvy hoarders who sell their products so manufacturing the pandemic by hoarding doesn't work 3) Preventing the early spread of the virus requires state-level coordination to be successful or else the virus spreads anyway. So for the low reproduction number scenario, let's assume massive state intervention. In that case, containment is very likely and there is no future excessive demand for hand sanitizer, thus even savvy hoarders will sell their stock early on.