Monday, August 29, 2011

In Defense of Price Gouging

A look at how government restrictions over pricing result in unintended consequences.  The defense (Washington Examiner):

Disaster pricing often yields more widespread allocation of scarce resources. So everybody has something, and it's less likely someone's sitting on water or batteries they don't need.

Think of those families doubling up in hotel rooms during the hurricane. Those hotels only would double their prices if they thought they could still fill every room. So, if families weren't feeling pressured to share a room, where would the later-arriving families have stayed? In their car during the hurricane?

Greedy exploitation is a different thing. If I run the only store in a town and decide to hike the price for water on a group just because they look thirsty -- even though I'm in no danger of running out -- that's exploitation. But if I'm dealing with a stock that's going to run out, there's nothing wrong with pricing goods so that each good goes to whoever wants it most, rather than whoever can get to it first.

Obviously, we should take care of the poor, as a matter of charity. We all have a duty to take care of the needy, and the class of people fitting into that circumstance expands during a hurricane or other crisis.

But objections to "price gouging" often unhelpfully blend the duty to charity with the dynamics of the market.

If a store owner wants to give discounts or freebies to the poor, that's great. And if he wants to double the price of something he's about to run out of, that should be okay, too.

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