
Capitalizing on hurricanes Irma and Harvey: $6,785 for an economy seat - pbhowmic
https://www.washingtonpost.com/news/get-there/wp/2017/09/07/capitalizing-on-hurricanes-irma-and-harvey-6785-for-an-economy-seat/?deferJs=true&outputType=default-article&utm_term=.5f61ee42a5f3
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Taek
Price gouging incentivizes creative and extreme tactics to increase the supply
of a scarce good. And even when supply is inherently fixed, it at the very
least gives you a clean way (even if it's not necessarily fair or good) to
figure out who gets the last 10 bottles of water.

But, if we're selling bottled water at $99 per crate, I can do all sorts of
crazy things to bring in water. I can convince my friends to take a week of
their vacation to help me figure out how to get an extra 10,000 crates of
water to the disaster area for a cool million bucks. And then we've got a fat
budget to rent boats, off-road vehicles, even helicopters to bring in crates
of water. At $99 per crate, I can think of a lot of absurd supply chain
tactics that are actually economical with that kind of revenue.

If you create a law that bans me from selling water for $99, I'm not going to
be able to do any of that. Not only am I no longer incentivized to drop
everything and spend a week organizing a water supply chain, even if I was
incentivized I don't have the kind of budget I need to get water bottles into
a city that's underwater.

If people are willing to pay that much for gas, water, plane tickets, it means
they really need it, and that you can do some funky and extreme things to
increase the supply while still being fully profitable.

~~~
TaylorAlexander
While I don't disagree with your analysis, I think it misses something
important.

There are people - living, breathing people - who are experiencing trauma and
danger and who are starving and thirsty.

We could choose to spend our own money on gasoline to drive down and
distribute water. We do not need to seek compensation for everything we do. We
can choose to lose money to help people who are in need. And I think charging
$99 for a crate of clean water is adding insult to injury to people who have
lost their livelihood.

The calculus of your argument is correct but it lacks empathy.

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beaner
Raising prices economizes scarce resources. It ensures that one family doesn't
buy all the water in the store for themselves, and that there is more for
others. If it's an emergency then the high price is worth it. If the price is
too high to be bought, the seller can't sell anything. The price finds an
equilibrium which is useful, not harmful. If you want to help, send the
victims money afterwards.

~~~
frgtpsswrdlame
>If the price is too high to be bought, the seller can't sell anything.

This is the trick in your sentence. We're talking about aggregate demand and
aggregate supply but at the individual level there is certainly the
possibility that the price is too high for someone to buy.

Here's the problem, economic utility cannot be a moral guide in this
situation, look at this example:

(1) Water is normal price but with a limit per customer or lottery.

(2) Water is very expensive and the richest person or people in town buy a lot
and hoard it.

#2 generates a lot more economic utility, but we can all agree that it's not
an optimal situation here.

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refurb
I think the picture of the shopper with hundreds of bottles of water
illustrates the problem nicely.

In a disaster, demand changes. If you artificially keep prices from
increasing, you'll have shortages. And likely those shortages are due to
customers buying a ton of product and just selling it on the side at a higher
price.

~~~
jonknee
> And likely those shortages are due to customers buying a ton of product and
> just selling it on the side at a higher price.

So have a max per person? Economic theory is nice and all, but limiting
disaster supplies to wealthy people is not an acceptable answer.

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darawk
Well, economic theory would ordinarily indicate that supply would increase to
meet demand. That is, if a plane ticket starts costing $6500 for an economy
seat, more people will enter the airline industry, and the prices will fall.
And in the case of more elastically supplied goods (e.g. water) during a
disaster, that's probably correct. But airplane seats are fairly inelastic.
So, I think that's the tension we're seeing here. I'm not sure what the
solution is though. The reason for the high price is fundamental: there are a
limited number of seats available. You'd better believe every available seat
will get sold to someone, and they have to be allocated somehow.

~~~
panarky
> they have to be allocated somehow

There's a proven algorithm to allocate scarce resources without price-gouging.

That algorithm is called "first-come-first-served-with-quantity-limits".

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varjag
This is the best algorithm to emerge a black market. Then you can have both
first-come-first-served AND price gouging!

~~~
whyaduck
Given the existing laws, stores engaging in price gouging essentially are a
black market. You don't stop trying to manage a disaster just because there's
no perfect solution.

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varjag
No, that's simply 'market'. It becomes black only when you outlaw it in an
attempt to enforce perceived fairness† but not backing the supply side.

[†] we can argue long and hard about morality of "first to grab wins" vs
"deepest pockets win", but let's agree in most societies neither is seen as a
virtue.

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jedberg
At the end of the day this is a failing of the government (both State and
Federal).

We have a Federal oil reserve. The government bears the cost of storing it
(and in turn all taxpayers bear a small cost) so that when something happens
and we need oil, we have it.

The state of Florida should have a bottled water and canned goods reserve.
They (and their taxpayers) should bear the cost of storing those goods so they
are available for a disaster.

Then there wouldn't be price gouging.

You could do the same with planes. They could store planes for times of
emergency, or they could repurpose military transports or at the very least
they could let the airlines set demand based prices and then subsidize
people's purchases based on income and need, so that the airlines are
incentivized to send more planes, but everyone can still get out.

If you believe that the government is the ultimate collective risk pool then
it makes sense for it to act like one.

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kwerk
I'm in South Florida and facing this trying to book flights out (getting stuck
on I-95 with a two year old won't work for us).

The airlines have adjusted their rates (it seems) but you can only find
tickets if someone cancels.

I used the Chrome Puppeteer API to check Delta once per minute and grabbed
tickets for $130 per passenger.

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BFatts
There is also the increased cost of getting this merchandise to an area that
is in shortage. If the roads are in disrepair, or there is flooding, it's
gonna cost more to stock it. I have a feeling that not all increased prices
are gouging... a lot of it is just that people don't want to have to pay more
when crisis strikes. But preparedness counts in a situation like this. Waiting
until the day before landfall to go and stock up is just plain idiotic. People
need to think and plan ahead. If things cost more when you do it - you
probably just waited too damn long to get your supplies.

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wang_li
Why does everyone making these analysis ignore the context and the choices
leading up to the moment in question?

Hurricanes are not stealthy, there are multiple day's warning before they make
any kind of landfall. One person gave up something in the days prior to the
hurricane so that they could have sufficient supplies to last out the event.
Another person didn't make the same choice, and now it's being deemed unfair
and unjust that the second person has to do without or pay a premium for their
decision.

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zo1
If price-increases are allowed during severe shortages, then people would make
a business of "pre-stocking" disaster-prone areas so that there is enough to
satisfy this increased demand (at even reasonable prices, not extreme ones).
Sounds like a perfectly reasonable business model.

But pre-stocking, specifically the long-term storage of supplies (as most
preppers will probably note), is costly. At that point, it's not price
gauging, just simply the cost that that person/business spent trying to store
the supplies in preparation for the natural disaster. Heck, it might even be
something that certain businesses can can incorporate into their existing
warehousing/storage facilities. But that won't happen unless they're allowed
to charge normal rates during normal periods, and increased ones during
shortages. Because they'll simply go out of business, being the shop that
sells the "priciest" fuel and water.

But, to be honest, this really should be the responsibility of the government
(while it claims to protect us). Price-gauging would then not even be an
issue, because the government should be pre-stocking disaster-prone areas
already. I think that's who I'll reserve my moral indignation for, and not the
price-"gaugers".

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Retric
The assumption that a cart with that much water must be for a single family is
annoying etc. It could just as easily been a shelter stocking up.

~~~
maxerickson
I really hope that shelters aren't sending people out to buy water by the case
at retail prices.

Like, the state emergency management should be selling it to them by the
pallet at wholesale and delivering it.

(Florida devotes lots of resources to these problems; they are providing fuel
tankers with police escorts to gas stations...)

~~~
Retric
Logistics is hard. You can get it right 499/500 and still end up with someone
going to the local office supply store etc.

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csomar
You can't fix this. You either have a free economy or you don't. What you need
to ensure is that there is at least a few airlines and they are not
cooperating to manipulate prices.

Now you say: But there is the case of "natural disasters". So what? There are
ordinary people going through disasters everyday, not necessarily natural.
Should we go out of our way to accommodate them.

Most importantly, if you accommodate enough people during natural disaster,
you no longer have this supply/demand imbalance. Bam, problem solved.

Also consider the following: Capitalism kills the lower end who can't sustain
itself. Socialism, so far, kills the whole system because the whole system
can't sustain itself. Pick which one.

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whyaduck
This is just deification of capitalism and conflating decency in the face of a
life threatening situation with "socialism". Others have already answered the
question of what to do, but I'll repeat. Don't raise prices and let the goods
sell FIFO with reasonable limits on quantities. Raising prices during a
disaster does absolutely nothing to increase supply.

~~~
csomar
So you are just picking a different population. How is that more efficient
than the free market other than making you feel good and compassionate.

~~~
whyaduck
I believe in my case, the population would be people who can make it to the
store - unchanged from what it was before the store started limiting
quantities.

I'm having a hard time not getting snarky here because, to be honest, you
don't seem to be arguing in good faith.

~~~
csomar
> I'm having a hard time not getting snarky here because, to be honest, you
> don't seem to be arguing in good faith.

Really? Not in good faith? I'm neither a shareholder of these airlines,
neither live in the US, and recently most of my income is not related to the
US. I'm just stating my opinion.

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inanutshellus
Another reason "gouging" has good side effects (including incentivizing
companies to rush more flights down there ASAP, driving down "gouging" prices)
is that it helps stop hoarding of scarce resources:

[http://money.cnn.com/2017/09/07/news/economy/gas-
shortages-f...](http://money.cnn.com/2017/09/07/news/economy/gas-shortages-
florida-irma/index.html)

^-- Here, Floridians aren't "gouged" for gas, so they stock up on more than
they need "just in case", leaving the pumps empty and leaving companies with
little incentive to rush their workers down w/ more gas.

I mean, do _you_ want to drive a gas truck to Florida right now?

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qubex
I see people advocating the implementation of quantity controls as a means to
control hoarding as if those words had some intrinsic magical merit. Think
about it carefully for a moment and you will realise there is no actual way
for a single monopolistic store (let alone competitive stores, plural) to
fairly ration something in who supply.

Is the rule one per person? What if I go back to the store N times? What if I
have kids or aged parents that cannot come to the store themselves?

What if I buy a few per store?

Is it even fair to preclude these courses of action?

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pygy_
The flight prices increases makes it look like someone (neglectfully?) forgot
to disable the supply/demand price modification algorithm...

~~~
stronglikedan
I don't know why they would disable it, or why it would be neglectful for them
not to, _from a business perspective_. As long as they are charging the same
prices for the same supply/demand ratio that they normally would, then it's
not considered gouging (I don't know if they are or not). Granted, it would be
nice for them to disable it so that people can get affordable flights, but
they are a business after all is said and done, and I have no doubt they'll
fill all their seats regardless of the prices.

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sna1l
In regards to the airlines, is most of the price setting automated? Or is it a
manual process?

~~~
MrMember
A mixture of both. There are immense applications calculating fares based on a
ton of factors (estimated demand, seasonality, competitor prices, and much
much more) but analysts can tweak and modify markets manually as well.

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JustSomeNobody
And yet, JetBlue capped their rates out of Florida at $99.00. Not sure if they
fly out of South Florida or not, but that is certainly a wonderful gesture on
their part.

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rhapsodic
There are sound, morally justifiable reasons for allowing the prices of goods
and services to be set by market conditions, even during times of crisis and
severe shortages. But it's a waste of time to try to explain them to someone
who exhibits the same knee-jerk response as this article.

~~~
phailhaus
Okay, what's one? How do you defend price gouging water and airline seats
during an emergency?

~~~
josefresco
I don't see how it's defensible...

Let's say airline X jacks rates during a crisis. The "free market" reaction
would be that people would be outraged by airline X, and would then during the
crisis and in the future not use them - thereby hurting their business/brand.
A competitor, airline Y who didn't jack rates would then get current & future
business based on their noble actions during the crisis. The free market would
solve the problem by itself ... right?

Except wait... the people in the current crisis, aren't helped at all. And of
course, there's no guarantee that airline Y doesn't jack rates during the next
crisis.

Anyone else have a reasonable counter-argument?

Edit: Meant for my reply to be for rhapsodic - sorry.

~~~
yodsanklai
> I don't see how it's defensible...

I'm trying to answer for the sake of debating - not necessarily my point of
view.

First, regardless of how much the airline charges, there will be a fixed
number of people that will get a seat.

Now, suppose the price is kept low, like $99. Maybe some people that don't
want the seat that much will get it. They may have other options and wouldn't
pay $200 for the seat, but think $99 is ok. Conversely, some people who value
the seat much more (to the point they would pay $4000 for it) may not be able
to get it. So you can argue that the seats will be attributed randomly, which
is worse than basing the allocation on who wants the seats the most (well,
then there's the issue that $5000 is peanuts for some people, and a lot for
others, not sure how to answer to that).

Also, with the seats getting so expensive, the airlines may try to sell extra
seats (re-routing planes for instance).

Finally, this happens all the time in different contexts. People go to all
sorts of trouble because they don't have access to the best lawyers, doctors
or can't afford their medication. It's not really an argument but if we are
consistent, we shouldn't be shocked by one and not the other.

~~~
phailhaus
It seems like the ideal solution scales the price increase to an individual's
income. A flat $200 increase does not impose the same burden on everyone, and
only helps out company profits.

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TekMol
I think that as a society, we have learned that a market works best if it is
free.

If we think there should be cheaper flights, then that is a service that we
should provide via means of the government.

~~~
colechristensen
America has _never_ had a free market. This is doubly true for airlines.

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dsfyu404ed
If you're not prepared you will pay somehow.

