Price gouging is usually defined as raising prices on certain kinds of goods, e.g. petrol, to an unfair or excessively high level during an emergency, like an earthquake. In the U.S. price gouging is illegal in 34 states and many people would like to see it made illegal here in New Zealand as well. But Matt Zwolinski asks whether making price gouging illegal really is the best policy option. He uses an simple example to examine the moral status of price gouging.
The following points suggest that price gouging may not be immoral:
- Consumers do not have to buy products for the higher price. If they decide to pay, it is likely because they are getting more from the product then they’re paying.
- If the prices for important goods do not go up, it is likely that scarce resources will not be available for those who need them most.
- For buyers, high prices reduce demand and encourage conservation. People who may need something more are likely to pay more. For sellers, being able to charge higher prices creates a profit incentive to encourage more sellers to bring products to the market.
- The profit motive will increase competition and eventually drive down the price.