Saturday, September 17, 2005

Price Gouging

Is raising prices when natural disasters deplete the supply really that bad? Walter Williams, in the Washington Times, argues that price gouging forces people to economize resources. His example:

"Here's a which-is-better question for you. Suppose a hotel room rented for $79 a night prior to Hurricane Katrina's devastation. Based on that price, an evacuating family of four might rent two adjoining rooms. When they arrive at the hotel, they find the rooms rent for $200; they decide to make do with one room. In my book, that's wonderful. The family voluntarily opted to make a room available for another family who had to evacuate or whose home was destroyed. Demagogues will call this price-gouging, but I ask you, which is preferable: a room available at $200 or a room unavailable at $79? Rising prices get people to voluntarily economize on goods and services rendered scarcer by the disaster. "

Moreover, raising prices make sense because the producers of goods are forced to pay a higher cost. Last week, I spent the weekend in Lakewood NJ, where the co-op raised prices because the higher cost of gasoline increased their costs. Is that really unfair? Should the retailers bear the cost of the disaster?

Here's a question on a related point: Let's say we have ten gas stations in a centralized area. The average price for gas is $3.50 per gallon for regular. One of the gas stations charges $5. Is that price gouging? Or is it only price gouging when the seller monopolizes the market? What about if it's the only gas station within a two mile range and there's a snow storm that makes the roads hazardous? Is something only price gouging when the consumers have no other choice? I don't know the relevant laws, but I wonder where we draw the line.

(Hat Tip: [what else?] Volokh Conspiracy)

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