Monday, September 15, 2008

The Elusive Quest for Price Gouging

Anti-price gouging laws are notoriously vague, a fact Florida reminds us of this week. It issued subpoenas to four gas station companies on the basis of price gouging, or according to Florida state law, "an unjustified increase in price" during a state emergency.

What's "justifiable" in this context is not something laws can determine. If a firm increases its price, that consumers determine if it's reasonable by virtue of their actions (and their continued patronage). If an increase is truly arbitrary, then competitors will keep prices lower to get all the business. This argument doesn't work if there's no competition (and no chance for it) but because Florida issued subpoenas to four companies we don't have that problem here.

Markets are not made up of faceless CEOs and wild-eyed Wall Streeters. Markets are more ephemeral than that. They are composed of the interactions of countless millions, each competing with some to appease others. Markets are ecologies, not dictatorships.

1 comment:

Anonymous said...

Professor Youngberg:
I agree. “Price gouging” does not exist. Prices are subjective. The price of something is what it means/worth to you. The price of goods, in this case gas, should not be artificially set at a lower price in order to “protect you from getting ripped off.” If the price is high, and you buy the good, then it was a positive sum game where both parties mutually benefited. It’s simple; if you think the good is overpriced then don’t buy it and go somewhere else.

According to the law of supply and demand, setting the price artificially lower then equilibrium will cause shortages. Quantity demanded will be higher then quantity supplied.