

The Case for Price Gouging - tptacek
http://www.slate.com/articles/business/moneybox/2012/10/sandy_price_gouging_anti_gouging_laws_make_natural_disasters_worse.html

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anigbrowl
Supply shocks and demand shocks are somewhat different. Yglesias has plenty of
money, so he doesn't want to have his time gouged. On the other hand, a well-
supplied Yglesias (at a higher cost) is of no more benefit to the local
economy than a less well-off person whose access to storm supplies is
protected by laws against price gouging.

Yglesias' time is more valuable since he as a comparative advantage in a
lucrative market (political punditry), and so it is more efficient for him to
maximize his available time...in the long run. In the short run, he's not
going to hire any more interns or increase his personal or local economic
output, so there's no particular reason that he should be able to
preferentially minimize his time cost. He's overstating his case and ignoring
the fact that many retailers seek to extract economic profits while showing
little inclination to temporarily exit the market.

tl;dr contrarian linkbait.

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tptacek
If you fix prices, goods tend to be allocated to the people who value their
time the least. If you let prices float, goods tend to be allocated to the
people who value their time the most. Neither is an optimal allocation.

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anigbrowl
I agree, and over longer periods I'm also inclined to let prices float. In a
short-term emergency, though, people have to make compromises, just they may
have to tolerate things like mandatory evacuation orders.

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tptacek
Which is worse: allowing prices on (say) bottled water to rise by 20%, or, by
keeping prices artificially low, ensuring that people who arrive at the store
a few hours late find no bottled water at all?

I don't think this is a linkbait question at all. Yglesias is pointing out
that our mental model of "price gouging" during disasters is gigantic rent-
seeking markups, but the reality is often a more modest increase in prices.
Since the value of many of these goods spikes during disasters, artificially
holding their prices down is like declaring a sale on them; in other words, it
sends a very counterproductive message to the market ("buy everything you can
get your hands on whether you really need it or not").

I'm just asking the question, by the way. I have no idea what the answer is.
Off the top of my head, though, it seems like enforcing "limit N per customer"
is a worse way of controlling this phenomenon than simply allowing prices to
rise to meet demand.

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dctoedt
Not everything in a crisis can be cast in rational, economic terms. There's
also the intangible emotional and social-cohesion value that comes from the
sense that "we're all in this together." Sudden price increases, no matter how
rational they might be economically, can damage that sense of community.

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tptacek
The problem that the article points out is, hoarding damages community
cohesion too.

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dctoedt
> _hoarding damages community cohesion too_

True, but not in a manner readily attributable to a particular party, as is
the case with price increases.

If a gas station raises its prices, everyone knows who did it and can point
the finger of blame.

On the other hand, if the gas station runs out of gasoline, no one knows who
hoarded by buying more than they needed, except _possibly_ the hoarders
themselves --- who might not know whether or not they actually needed the
extra gasoline until after the crisis has passed.

