"Price gouging"...

[mobrien316]

I have another rant…

Hurricane Irene hit Connecticut pretty hard. Something like 64% of the state’s power grid went down. There are still people without power across the state.

In listening to the radio this week, I have heard dozens and dozens of “public service announcements” alerting people to call the Department of Consumer Protection if they encounter any instances of “price gouging.” The example they give, over and over, is that if you find a generator for sale that normally goes for $1000, and “they” are charging $2000, $3000, or more for it, that’s “price gouging” and that should be reported to the state. Senator Richard Blumenthal (the former Attorney General of Connecticut) was on WPLR the other day, stressing how seriously he would be taking any reports of “price gouging” and how there may be “hearings” later to deal with this issue.

My considered opinion on this is: They are idiots with zero knowledge of economics. Blumenthal is pandering to the masses, trying to garner support; he is smart enough to know that so-called “price gouging” is actually a good thing.

For example: Let’s say a hurricane hits Connecticut and knocks out power to a large number of people for an extended time. A person who owns a hardware store with ten generators in stock, which sell for $1000 apiece, decides to sell the ones he has for $2500 apiece. People naturally get upset, and slimy politicians will naturally play to their anger and try to jump on the bandwagon by railing against “price gouging.”

However…

The first result of this so-called “price gouging” is that people will only buy a generator if they really need one, and very few people will buy more than one. This means more generators are available for those who really need one. Imagine if the store owner decided to sell them for $50 each; people who need them to keep the beer cold in the fridge would buy three or four and people who need it to run the recharger on their electric wheelchair or to run their heart monitor would be shut out.

The second result is that there is now a demand for generators in Connecticut, which will result in many more generators being available for people to buy. Imagine the owner of a hardware store in Maine has a stock of fifty generators, all selling for $1000 apiece. If he thinks he can sell them for $2500 apiece if he drives them to Connecticut, he will. He wouldn’t bother to do so if he was going to sell them for $1000 apiece because he’d wind up losing money after paying for tolls and gas.

The third result is, since so many people are now trying to make a profit by driving trucks full of generators to Connecticut, the price of generators will go down. If the store owner from Maine sets up his truck in a lot somewhere, selling generators for $2500 apiece, and he is next to ten other trucks selling their generators for $2000 apiece, the store owner from Maine will automatically lower his prices. As he does, so will everyone else, since the demand for generators remained constant but the supply of generators greatly increased. The price might even wind up being less than the $1000 the generators were selling for prior to the hurricane.

I understand people’s gut-reaction to increased prices in an emergency is to scream “Unfair!” But the politicians should be explaining why this is a good thing rather than standing next to the masses and shouting “Unfair!” with them when they damn well ought to know better.

[shugs]

That is a poor example and you know it. It also is only part of the story. Here is a better example.
Replace the word generator with water, food or any other material and it doesn't hold up at all for being helpful. I am fine with people supporting market prices but I feel
we are disingenuous when we pretend it is anything other than profiteering.

[MikeG]

Without the "gouging" it will be replaced by "hoarding." If you don't let the legitimate market set the price, the black market will. Why should a store that is collecting taxes sell water/food/generator at below market rates so that the real "profiteer" can sell it for the market price? If I recall, the real profiteers during Katrina were citizens that took free FEMA water and sold it to others when FEMA ran out. Gouging laws work when there is sufficient supply but panic is driving consumption. They don't work when supply can't meet demand and the only thing that will equalize it is price. If it is really a problem, they shouldn't have "gouging" laws, they should have rationing laws.

[pafindr]

When 9/11 happened I remember some gas stations in MI raising their gas prices to $6 a gallon.

When hurricane Andrew decimated Homestead FL and people lost everything they owned some people went there and charged them $10 for a bag of ice (which normally costs $1)?

You think that praying on the fear of the public and over charging on something is ok?

[MikeG]

When 9/11 happened I remember some gas stations in MI raising their gas prices to $6 a gallon.

When hurricane Andrew decimated Homestead FL and people lost everything they owned some people went there and charged them $10 for a bag of ice (which normally costs $1)?

You think that praying on the fear of the public and over charging on something is ok?

OK? No. The point is exemplified by your Andrew example. The law exists but it's never going to stop it. Creating it to appease the conscience of people only lets politicians pander to those feelings. Price gouging will just move down the food chain. It's the individuals that are the problem, not the corporations. If they were serious about stopping it, they would also create rationing laws like "during emergencies, individuals are only allowed to possess 1 bag of ice. " Otherwise, the gougers will simply buy the bags of ice from the $1 non-gouging superstore that is watched by the AG and sell it themselves for $10. As long as there are buyers for $10, there will be sellers. No AG is going to take a complaint of "Joe my neighbor sold me ice for $10 during a hurricane" but I bet if McDonalds stopped offering ice coupons during a hurricane, the AG would be all over it. It's political more than practical.

[MPI1]

It is not "price Gouging" it is called the law of supply and demand. If the people are in demand the price goes up, when people are no longer pay the price for what they need the price goes down. I do agree that there needs to be protections but at the same time shop owners should have a little wiggle room to move their prices up and down depending on the circumstances.

[mobrien316]

That is a poor example and you know it. It also is only part of the story. Here is a better example.
Replace the word generator with water, food or any other material and it doesn't hold up at all for being helpful. I am fine with people supporting market prices but I feel
we are disingenuous when we pretend it is anything other than profiteering.

Replaced “generator” with “food” or “water” doesn’t change the example one bit.

Imagine a hurricane hits Connecticut and there is a shortage of food and potable water in the affected area. A grocery store with a limited supply of food items and bottled waters on hand, which we’ll say theoretically sells for $5 per unit, decides to charge $10 or $15 for the same items.

Once again, the most immediate result is that people will only buy the food and water they need to get through the crisis. This means more food and water will be available to more people. Imagine if the reverse happened, and the grocery store decided to sell their items for $1 apiece. The first few people to get there would buy up everything and fewer people will get food and water. Is that better? To have many more people not getting any food or water, or to have lots more people getting food and water but having to pay more for it?

The next result of the “price gouging” is that there is now a great demand for food and potable water in Connecticut. Those stores with a good supply of food and water, seeing that they can sell their products for double or triple normal price if they drive them to Connecticut, will be much more likely to do so. Imagine again that the price of food and water was dropped to $1 per unit. Would anyone with large supplies of food and water bother to drive to CT to take a loss on their sales? Would anyone bother to drive to CT and pay for gas and tolls if they are only going to sell their goods for the exact same price they would if they stayed put and didn’t have any expenses for gas or tolls?

The final result is also going to be the same. Since the price of food and water is increased due to low supply and high demand, many more businesses and people will bring food and water to CT in order to make a profit. With many more suppliers of food and water in CT, the prices will automatically go down. They might even go below the level they were prior to the hurricane.

If prices don’t go up, people will hoard, resulting in less people getting any goods at any price.
If prices don’t go up, people in other areas who have the needed supplies have no incentive to bring their goods to the affected area, resulting in less people getting any goods at any price.
If prices don’t’ go up initially, the supply of goods will not increase, leading to continuous price increases rather than a decrease once the supply goes up, resulting in less people getting any goods at any price.

How is so-called “price gouging” not a good thing?

[JoetheGI]

That whole "supply and demand" thing gets lost on most people.

Politicians would better serve their constituencies by focusing on course of action development that would significantly hinder the NEED to gouge prices to meet demands. Likewise, citizens should concern themselves with developing a course of action that precludes the NEED to purchase inflated goods during a crisis.

Prior proper planning prevents buying 10 dollar bags of ice, 5 dollar bottles of water, or 3 grand generators.

[pafindr]

That whole "supply and demand" thing gets lost on most people.

Politicians would better serve their constituencies by focusing on course of action development that would significantly hinder the NEED to gouge prices to meet demands. Likewise, citizens should concern themselves with developing a course of action that precludes the NEED to purchase inflated goods during a crisis.

Prior proper planning prevents buying 10 dollar bags of ice, 5 dollar bottles of water, or 3 grand generators.

Very true. I'm a prepper so I have some stock in case of emergency.

Hey if any of you come down to Miami we'll go out on my buddies boat. We'll go swimming in the ocean and have some fun. Just remember to have your wallet with you to get back in the boat. Cash only.

[MPI1]

Prior proper planning prevents buying 10 dollar bags of ice, 5 dollar bottles of water, or 3 grand generators.

My Sgt always said the 6 P's in life are what we need to live by "Proper Planning Prevents Piss Poor Performance."