Soaring prices after a natural disaster or during extreme weather are simply, economists would say, the market’s response to changing supply and demand, as disruptions make it harder to get some things just as demand spikes (for instance, for generators, gasoline, bottled water, first aid supplies). The price increase helps cut down on marginal uses (taking a bath with your bottled water), while drawing new supply in from unaffected regions, because people there now have a strong incentive to load up supplies and go sell them in the affected area — quickly. The market is working. But the optics are terrible. Humans intuitively see price gougers as bad agents, exploiting the suffering of others. So even in the absence of price-gouging laws, businesses try to avoid raising prices under extreme conditions. Whatever they could gain in immediate revenue, they would lose more in future sales as disgusted customers walk away.
Megan McArdle, “The Price Is Right, or Uber Will Raise It”, Bloomberg View, 2015-05-19.
December 27, 2016
QotD: The economics of price gouging
Comments Off on QotD: The economics of price gouging
No Comments
No comments yet.
RSS feed for comments on this post.
Sorry, the comment form is closed at this time.
