Monday, March 16, 2020

In Praise of Price Gouging

Price gouging is a good thing. Honestly. And not in the whole "Greed is good" kind of thing. Price gouging, as many call it can be quite beneficial to society. Let me give you a few examples:

Unless you've been hiding under a rock for the last few weeks, you've seen countless pictures of empty shelves, where stores of toilet paper used to be. Maybe you've seen pictures, or witnessed in person, scenes of people buying pickup trucks full of toilet paper or bottled water. Panic buying. You often see it around hurricane season on the coast. People buying plywood to board up windows, building supply companies running out of plywood. As they used to say, "What's a mother to do?"

Now I want you to imagine that you are second in line to buy these necessities. The guy in front of you at Wal-Mart bought their last twenty cases of water, because, even though it was a bit excessive, he could afford it easily. You gaze longingly at the empty shelf and ask if they have any left in the back. No joy.

Same situation, but this time, the retailer dares to raise the price of water, from what it had been the day before, with no further investment on his part, and "gouge" the customer by doubling the price. Tripling the price? Now the guy in front of you says, "That's outrageous! That's price gouging!". But because he really needs some water, buys a case or two anyway, and mirabile dictu, there is water left on the shelf for you and your family and maybe a dozen others. Sure, you'll all complain about the price, but if you need it, you'll buy it, and people will be, in most cases, less likely to hoard it.

I used to get really ticked at gas stations, whenever the price of gasoline went up, they jacked up the price, even though the quantity they already had in the tanks had been purchased at the lower price! They were "profiteering" off the circumstances, weren't they? Not really, because their cost of refilling their tanks the next time was going up and they'll need more cash to buy the product. Would you rather they sold the gas in their tanks, lower than what it would cost to refill them and then risk the possibility of your inconvenience if there's no gas there in the future? Afterwards, when prices fluctuate down again, they'll have to sell that gas they bought at a higher price for a smaller margin, or at cost, as prices come down again.

So, "price gouging" can work as a form of economic rationing, a deterrent to hoarding, to customers, and can flatten spikes in cost to the retailer... is there anything else that might be helpful?

Higher prices can also mitigate risk. What if the retailers were to take it upon themselves to increase the supply to help meet the demand? You order something from Amazon, maybe they ship it to you in a week or two for free. But if you want it overnight, it costs you more. If the retailer hires some guy to make a special trip to get extra product to his customers, over and above his usual delivery, why would he do that if not for monetary consideration. If it provides the necessities his customers need, even if they begrudge him the prices, does it not serve the greater good of the community?

So, how much is too much? Hard to say. That's going to vary. There are some people, like that clown in Tennessee who drove all over the state clearing out stocks of hand sanitizer in every store he visited, hoping to score big. There will always be exceptions to the rule. Obviously not ALL gouging will be good, but penalizing retailers who raise prices in times of shortage can be detrimental, too.

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