Tuesday, 9 July 2013

5 reasons price gouging should be legal

"Price gouging" is meant to describe something bad, something we don't want to see happen, especially in emergencies. But Peter McCaffrey argues that we should like price gouging and gives 5 reasons why:
So-called price gouging is a critical economic tool to ensure that supplies last and so can meet ongoing demand. Making it illegal is ridiculous, and here’s why:
  1. Without price increases, many people buy extra supplies “just in case”, regardless of what they have tucked away at home already. If too many people do this, supplies run out and people who need them much more urgently miss out. With price increases, people who don’t really need supplies will leave them on the shelf, not out of the goodness of their heart, but out of concern for their wallet.
  2. Price increases encourage conservation of resources people already have. Those who can most easily adjust their consumption will do so, leaving resources free for those who can’t. People might, for example, use their cars more sparingly to avoid having to fill up while prices are inflated.
  3. The ability to raise prices encourages businesses to stock excess reserves. Space in stores and warehouses is limited and products (even water) go off over time. If they’re not allowed to raise prices on those items, they’ll use that limited space for other products that have higher profit margins the rest of the time.
  4. Allowing price gouging actually encourages citizens to be more prepared for disasters. Do you have enough food and water and other essentials stored at home for you and your family if disaster strikes your town? Or do you just assume you’ll be able to go to the store and buy what you need when something goes wrong? Knowing that prices might double, triple, or more during a disaster is a pretty big incentive to go and stock up now instead of waiting — even for that person who lives right next door to the store!
  5. Finally, rising prices attract more resources from outside of the disaster area, where prices are lower. Nearby businesses, small or large, can easily profit by shipping essential supplies in and selling them at a premium. Without the ability to charge that premium, they would actually end up losing money through shipping costs, overtime wages, and inherent risks of operating is a disaster area. Without the profit motive, many don’t take the risk.
McCaffrey suggest that we should use a different term for what is now called price gouging:
“Price gouging” is a derogatory term meant to belittle. A more accurate description would be “sustainable pricing” — pricing that ensures supplies are sustainable to meet the demand of future customers.
So, "price gouging" is dead, long live "sustainable pricing".


dd said...
This comment has been removed by the author.
dd said...

Arguably allowing price gouging will cause people not to stock up and outlawing price gouging will cause people to stock up. Because if price gouging is illegal then there is a big risk that the product will not be brought in when needed. IF a seller can sell for whatever price the market bears there is a strong chance that the product will be brought in.
As a consumer if it is an important item I can not risk the chance that anti-price gouging laws will make it that there is no produce available and therefore will stock up!!