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Price Gouging

February 28th, 2012
econ

With a hurricane forecast, prices for bottled water go up. Afterwards a pumping company charges ten times as much to empty basements and a gas station raises prices by 17%. Or a contra dance expecting to be over capacity announces high prices to limit attendance [1]. More expensive fans during a heatwave. Higher tolls during rush hour. People want more of something than is available, and sellers are choosing between keeping the prices the same and running out, or raising their prices and making a lot of money.

People generally get really upset at this, calling it price gouging. I don't understand why: wouldn't you rather go to the store and find that bottled water was available if you were willing to pay enough than that they were out? Worse, this keeps sellers from spending more to make more water available:

"Businesses and individuals cannot and should not take advantage of this public emergency to unfairly charge consumers far beyond what they would typically charge for water. Our office will be sending out inspectors to review reports of price gouging and also conduct spot-checks of local businesses ..."

Bottled water manufacturers said they were increasing production, but that their ability to supply the region was limited by a shortage of drivers on Sunday. -- Boston Globe

If it were legal to charge more for water in an emergency they could deal with their driver shortage by offering to pay big overtime bonuses to work on a Sunday. Or would that be price gouging by the drivers?


[1] BIDA just decided not to do this for the upcoming Spark in the Dark. So if you show up late, there probably won't be room. I'll not be there; I'm playing the Cotuit dance that evening.

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