Wednesday, 2 March 2011

Hoarding as vertical integration

Much heat has been generated over the question of the pricing of petrol after the Christchurch quake. Eric Crampton wants prices to rise, Keith Ng does not. Eric responds to Ng here. At the TVHE blog rauparaha writes,
On the first point, Keith claims that the people who want petrol the most are the ones who are concerned about future supply and that they will be most willing to pay the higher prices. Regardless of the validity of his claim that’s not a good reason to keep prices low. If the hoarders are the ones who most want the petrol then why shouldn’t we put them first in line?
I to ask why not have the hoarders at the front of the line. After all one common reason for vertical integration between firms is concern about future supply. If a firm is worried about being able to obtain an input from a supplier in the future it could take that supplier over to ensure supply. If it is efficient for firms to do this, Why not individuals? All the hoarders seem to be doing is ensuring future supply in the same way as the firm is. If we are ok with the firm putting itself first in line, why are we not ok with individuals doing the same?

1 comment:

Eric Crampton said...

Fuel crisis passed over the weekend. Still think price rise for Wed-Friday would have been optimal.