$4 for a Can of Coke? Price Gouging Hits New Level

[WallyWeaver]

Ahhh, price gouging.... I remember getting into a very heated debate about this in an Economics 101 class back in my college days. Several questions arose: Does morality play a part in economics? Is price gouging immoral? Should the government regulate price gouging for private businesses (similar to implementing price controls)?

All I can say is the debate got very heated as it was a very sensitive topic to struggling/ poor college students. Interestingly my view has changed now that I'm older.

Any thoughts would be appreciated.

WW.

$4 for a Can of Coke? Price Gouging Hits New Level

By John Carney | CNBC – 1 hour 9 minutes ago

Four dollars for a can of coke. Five hundred dollars a night for a hotel in downtown Brooklyn. A pair of D-batteries for $6.99.

These are just a few of the examples of price hikes I or friends of mine have personally come across in the run-up and aftermath of hurricane Sandy. Price gouging, as this is often called, is a common occurrence during emergencies.

Price gouging around natural disasters is one of the things politicians on the left and right agree is a terrible, no good, very bad thing. New York Attorney General Eric Schneiderman sent out a press release warning warning "against price inflation of necessary goods and services during hurricane Sandy." New Jersey Governor Chris Christie issued a "forceful reminder" that price gouging "will result in significant penalties." Hotlines have been established to allow consumers to report gouging.

New Jersey's law is very specific. Price increases of more than 10 percent during a declared state of emergency are considered excessive. A New Jersey gas station paid a $50,000 fine last year for hiking gasoline prices by 16 percent during tropical storm Irene.

New York's law may be even stricter. According to AG Schneiderman's release, all price increases on "necessary goods and items" count as gouging.

"General Business Law prohibits such increase in costs of essential items like food, water, gas, generators, batteries and flashlights, and services like transportation, during natural disasters or other events that disrupt the market," the NY AG release said.

These laws are built on the quite conventional view that it is unethical for a business to take advantage of a disaster in order pursuit of profits. It just seems wrong for a business owners to make money on the misery of their neighbors. Merchants earning larger profits because of a disaster seems to reward them for doing nothing more than raising their prices.

"It's reverse looting," a neighbor of mine in Brooklyn said about the price of batteries at a local electronic store.

Unfortunately, ethics runs into economics in a way that can make these laws positively harmful. Price gouging can occur only when there is a shortage of the goods in demand. If there were no shortage, normal market processes would prevent sudden price spikes. A deli charging $4 for a can of Pepsi would discover he was just driving customers to the deli a block away, which charges a buck.

But when everyone starts suddenly start buying batteries or bottles of water for fear of a blackout, shortages can arise. Sometimes there simply is not enough of a particular good to satisfy a sharp spike in demand. And so the question arises: how do we decide which customers get the batteries, the groceries, the gasoline?

We could hold a lottery. Perhaps people could receive a ticket at the grocery store. Winners would get to shop at the usual prices. Losers would just go hungry. Or, more likely, they would be forced to buy the food away from the lottery winners-at elevated prices no doubt, since no one would buy food just to sell it at the same price. So the gouging would just pass from merchant to lottery winning customer.

We could have some sort of rationing program. Each person could be assigned a portion of the necessary goods according to their household need. This is something the U.S. resorted to during World War II. The problem is that rationing requires an immense amount of planning-and an impossible level of knowledge. The rationing bureaucrat would have to know precisely how much of each good was available in a given area and how many people would need it. Good luck getting that in place as a hurricane bears down on your city.

We could simply sell goods on a first come, first serve basis. This is, in fact, what anti-gouging laws encourage. The result is all too familiar. People hoard goods. Store shelves are emptied. And you have to wonder, why is a first to the register race a fairer system than the alternative of market prices? Speed seems a poor proxy for justice.

Allowing prices to rise at times of extreme demand discourages overconsumption. People consider their purchases more carefully. Instead of buying a dozen batteries (or bottles of water or gallons of gas), perhaps they buy half that. The result is that goods under extreme demand are available to more customers. The market process actually results in a more equitable distribution than the anti-gouging laws.

Once we understand this, it's easy to see that merchants aren't really profiting from disaster. They are profiting from managing their prices, which has the socially beneficial effect of broadening distribution and discouraging hoarding. In short, they are being justly rewarded for performing an important public service.

One objection is that a system of free-floating, legal gouging would allow the wealthy to buy everything and leave the poor out altogether. But this concern is overrated. For the most part, price hikes during disasters do not actually put necessary goods and services out of reach of even the poorest people. They just put the budgets of the poor under additional strain. This is a problem better resolved through transfer payments to alleviate the household budgetary effects of the prices after the fact, rather than trying to control the price in the first place. (Note: its probably better if people don't expect this kind of assistance ahead of time, since knowing you'll get it could artificially drive up demand.)

Instead of cracking down on price gougers, we should be using our experience of shortages during this time of crisis to spark a reform of our counter-productive laws. Next time disaster strikes, we should hope for a bit more gouging and a lot fewer empty store shelves.

Link: http://finance.yahoo...-153919655.html

[King Bean]

It's times like these, I'm embarrassed to be a human being. Shame on those people.

[SgtFuryUSCZ]

***///

Here in FLorida we have laws in place for this sort of thing and actually Do prosecute!

But you're right, this kind of behaviour is despicable.

Shouldn't even need laws on the books for this sort of thing....

It is already written - "Thou shalt not steal"...

(Doubt you'd see that sort of thing happening much in the MidWest where values are

encouraged even though the commie teachers have tried to rip it from the curriculum.

When was the last time your kid came home with homework in CIVICS...?)

[WallyWeaver]

As suspected, this is a topic that people definitely feel very strongly about.

My point of view has changed a bit on this, though, as I've gotten older.

Please don't shoot me but I tend to agree with the author that "price gouging" may actually lead to a more equal distribution of goods as it discourages hoarding.

I thought the author summed it up pretty good here:

"We could simply sell goods on a first come, first serve basis. This is, in fact, what anti-gouging laws encourage. The result is all too familiar. People hoard goods. Store shelves are emptied. And you have to wonder, why is a first to the register race a fairer system than the alternative of market prices? Speed seems a poor proxy for justice.

Allowing prices to rise at times of extreme demand discourages overconsumption. People consider their purchases more carefully. Instead of buying a dozen batteries (or bottles of water or gallons of gas), perhaps they buy half that. The result is that goods under extreme demand are available to more customers. The market process actually results in a more equitable distribution than the anti-gouging laws.

Once we understand this, it's easy to see that merchants aren't really profiting from disaster. They are profiting from managing their prices, which has the socially beneficial effect of broadening distribution and discouraging hoarding. In short, they are being justly rewarded for performing an important public service."

I can say that I used to believe that price gouging was pure evil. My views have changed as I've gotten older and I have to say this author makes a strong case for the ethics of "price gouging," if there is such a thing.

Thanks for the above comments.

WW.

[bamagirl]

I tend to agree with you somewhat Wally... it's despicable that we as humans if think about profits during disasters but..... in some cases the one that gets there first or has the most money can buy all goods up and then sell at whatever price they want or worse just hoard said things while many go without... when they raise the price it makes it harder for any individual to 'stock up' insuring there are supplies left for others just at a higher cost..... just my opinion.

I just went back and read your whole post Wally, lol, that should teach me to quit skimming all I did was re-iterate what you said... have a great evening!

[parmenio]

Ahhh, price gouging.... I remember getting into a very heated debate about this in an Economics 101 class back in my college days. Several questions arose: Does morality play a part in economics? Is price gouging immoral? Should the government regulate price gouging for private businesses (similar to implementing price controls)?

All I can say is the debate got very heated as it was a very sensitive topic to struggling/ poor college students. Interestingly my view has changed now that I'm older.

Any thoughts would be appreciated.

WW.

$4 for a Can of Coke? Price Gouging Hits New Level

By John Carney | CNBC – 1 hour 9 minutes ago

Four dollars for a can of coke. Five hundred dollars a night for a hotel in downtown Brooklyn. A pair of D-batteries for $6.99.

These are just a few of the examples of price hikes I or friends of mine have personally come across in the run-up and aftermath of hurricane Sandy. Price gouging, as this is often called, is a common occurrence during emergencies.

Price gouging around natural disasters is one of the things politicians on the left and right agree is a terrible, no good, very bad thing. New York Attorney General Eric Schneiderman sent out a press release warning warning "against price inflation of necessary goods and services during hurricane Sandy." New Jersey Governor Chris Christie issued a "forceful reminder" that price gouging "will result in significant penalties." Hotlines have been established to allow consumers to report gouging.

New Jersey's law is very specific. Price increases of more than 10 percent during a declared state of emergency are considered excessive. A New Jersey gas station paid a $50,000 fine last year for hiking gasoline prices by 16 percent during tropical storm Irene.

New York's law may be even stricter. According to AG Schneiderman's release, all price increases on "necessary goods and items" count as gouging.

"General Business Law prohibits such increase in costs of essential items like food, water, gas, generators, batteries and flashlights, and services like transportation, during natural disasters or other events that disrupt the market," the NY AG release said.

These laws are built on the quite conventional view that it is unethical for a business to take advantage of a disaster in order pursuit of profits. It just seems wrong for a business owners to make money on the misery of their neighbors. Merchants earning larger profits because of a disaster seems to reward them for doing nothing more than raising their prices.

"It's reverse looting," a neighbor of mine in Brooklyn said about the price of batteries at a local electronic store.

Unfortunately, ethics runs into economics in a way that can make these laws positively harmful. Price gouging can occur only when there is a shortage of the goods in demand. If there were no shortage, normal market processes would prevent sudden price spikes. A deli charging $4 for a can of Pepsi would discover he was just driving customers to the deli a block away, which charges a buck.

But when everyone starts suddenly start buying batteries or bottles of water for fear of a blackout, shortages can arise. Sometimes there simply is not enough of a particular good to satisfy a sharp spike in demand. And so the question arises: how do we decide which customers get the batteries, the groceries, the gasoline?

We could hold a lottery. Perhaps people could receive a ticket at the grocery store. Winners would get to shop at the usual prices. Losers would just go hungry. Or, more likely, they would be forced to buy the food away from the lottery winners-at elevated prices no doubt, since no one would buy food just to sell it at the same price. So the gouging would just pass from merchant to lottery winning customer.

We could have some sort of rationing program. Each person could be assigned a portion of the necessary goods according to their household need. This is something the U.S. resorted to during World War II. The problem is that rationing requires an immense amount of planning-and an impossible level of knowledge. The rationing bureaucrat would have to know precisely how much of each good was available in a given area and how many people would need it. Good luck getting that in place as a hurricane bears down on your city.

We could simply sell goods on a first come, first serve basis. This is, in fact, what anti-gouging laws encourage. The result is all too familiar. People hoard goods. Store shelves are emptied. And you have to wonder, why is a first to the register race a fairer system than the alternative of market prices? Speed seems a poor proxy for justice.

Allowing prices to rise at times of extreme demand discourages overconsumption. People consider their purchases more carefully. Instead of buying a dozen batteries (or bottles of water or gallons of gas), perhaps they buy half that. The result is that goods under extreme demand are available to more customers. The market process actually results in a more equitable distribution than the anti-gouging laws.

Once we understand this, it's easy to see that merchants aren't really profiting from disaster. They are profiting from managing their prices, which has the socially beneficial effect of broadening distribution and discouraging hoarding. In short, they are being justly rewarded for performing an important public service.

One objection is that a system of free-floating, legal gouging would allow the wealthy to buy everything and leave the poor out altogether. But this concern is overrated. For the most part, price hikes during disasters do not actually put necessary goods and services out of reach of even the poorest people. They just put the budgets of the poor under additional strain. This is a problem better resolved through transfer payments to alleviate the household budgetary effects of the prices after the fact, rather than trying to control the price in the first place. (Note: its probably better if people don't expect this kind of assistance ahead of time, since knowing you'll get it could artificially drive up demand.)

Instead of cracking down on price gougers, we should be using our experience of shortages during this time of crisis to spark a reform of our counter-productive laws. Next time disaster strikes, we should hope for a bit more gouging and a lot fewer empty store shelves.

Link: http://finance.yahoo...-153919655.html

Uhmmmm...., Brooklyn..., did you say New York? Bet you ten to one they are libs!

Edited October 31, 2012 by parmenio

[WallyWeaver]

I just went back and read your whole post Wally, lol, that should teach me to quit skimming all I did was re-iterate what you said... have a great evening!

Well, anyone who roots for Nick Saban can't be all bad...

Thanks for the comment bama, as usual you are on the "right" side of the argument.

Have a great night yourself.

WW.

"Uhmmmm...., Brooklyn..., did you say New York? Bet you ten to one they are libs! "

I wouldn't bet against you on that.

Thanks for the comment, parmenio.

WW.

[cris]

Imo...Price gouging is despicable....The businesses that do this sort

of thing should be outed and boycotted, and the argument that it reduces

hoarding is a poor one....Not to mention, its nobody's damn business if I

want to have what I consider adequate supplies during a catastrophe.

I've seen some talk of penalizing 'hoarders' and I consider it extremely

offensive......If I happen to have the foresight to be prepared, thats a good

thing...I cant believe the amount of propaganda that I see these days.

Also, Would'nt raising taxes (by the Govt) during a time of National Crises

(depression/recession) be considered price gouging?

[bamagirl]

What I consider hoarding is alot different than prepping Cris.

[cris]

What I consider hoarding is alot different than prepping Cris.

I can agree with that bamagirl....But,

The folks that want to penalize for smart planning,

consider prepping to be hoarding

[WallyWeaver]

Imo...Price gouging is despicable....The businesses that do this sort

of thing should be outed and boycotted, and the argument that it reduces

hoarding is a poor one....Not to mention, its nobody's damn business if I

want to have what I consider adequate supplies during a catastrophe.

I've seen some talk of penalizing 'hoarders' and I consider it extremely

offensive......If I happen to have the foresight to be prepared, thats a good

thing...I cant believe the amount of propaganda that I see these days.

Also, Would'nt raising taxes (by the Govt) during a time of National Crises

(depression/recession) be considered price gouging?

Thanks for the reply Cris and I certainly appreciate your efforts on this site.

In your response you say : "the argument that is reduces hoarding is a poor one."

How so? Are you saying that a private business raising the prices of their products will NOT lead to a more equitable distribution in an emergency situation? Isn't the goal in an emergency situation to provide as many goods and services to as many as possible? Please explain.

No one here is arguing against being properly prepared. I myself am prepared for a catastrophe with food, water, a 7000 watt generator, gas, etc. (Matt. 25:1-13). But being prepared is not the argument here.

To your last point: the mechanism is not in place for instantaneous tax increases. If it were, though, I'm sure the government would be all for it. But you and I both know that disaster relief is a part of the budget for both local and Federal governments. In other words, our tax dollars have already paid for disaster relief so no need for instantaneous taxes. Now whether the government is responsible with its budgetary practices is another argument altogether.

WW.

[bamagirl]

I can agree with that bamagirl....But,

The folks that want to penalize for smart planning,

consider prepping to be hoarding

And I agree there should be no penalty for that, I am a smart planner myself not quite a doomsday prepper yet but I will be when the finances allow it..

[cris]

Thanks for the reply Cris and I certainly appreciate your efforts on this site.

In your response you say : "the argument that is reduces hoarding is a poor one."

How so? Are you saying that a private business raising the prices of their products will NOT lead to a more equitable distribution in an emergency situation? Isn't the goal in an emergency situation to provide as many goods and services to as many as possible? Please explain.

No one here is arguing against being properly prepared. I myself am prepared for a catastrophe with food, water, a 7000 watt generator, gas, etc. (Matt. 25:1-13). But being prepared is not the argument here.

To your last point: the mechanism is not in place for instantaneous tax increases. If it were, though, I'm sure the government would be all for it. But you and I both know that disaster relief is a part of the budget for both local and Federal governments. In other words, our tax dollars have already paid for disaster relief so no need for instantaneous taxes. Now whether the government is responsible with its budgetary practices is another argument altogether.

WW.

I just want you to know Wally, I appreciate your posts and insight.

Im not attacking you, but the idea....Its anathema to me

Certain 'officials' are using that word, hoarding, to describe the type of

preparedness you and I have and that bamagirl would like.

If you would like to share resources in an emergency, and limit the amount

bought, why raise the price?....A person with plenty of money wont be

dissuaded by the 'cost'.

If you'd like to limit the amount bought, then the amount bought can simply

be limited....Only 3 rolls of TP buddy, were in the middle of an emergency.

As for my final statement regarding taxes, I was merely making a point.

A Government that would deem a prepper to be a hoarder, has no business

raising taxes in the middle of an emergency, like a depression/recession.

I feel that an Administration that would do that, is gouging people already

under enough hardship ....

[WallyWeaver]

I just want you to know Wally, I appreciate your posts and insight.

Im not attacking you, but the idea....Its anathema to me

Certain 'officials' are using that word, hoarding, to describe the type of

preparedness you and I have and that bamagirl would like.

If you would like to share resources in an emergency, and limit the amount

bought, why raise the price?....A person with plenty of money wont be

dissuaded by the 'cost'.

If you'd like to limit the amount bought, then the amount bought can simply

be limited....Only 3 rolls of TP buddy, were in the middle of an emergency.

Hey Cris, thanks for the thoughtful response. I didn't think you were attacking me, by any means. And, again, I highly appreciate the good work you perform in the Off Topics section. You are a true soldier for conservatism.

I just think price gouging in an emergency is acceptable in a free market system. We may not like it and we may view it as taking advantage of a situation for pure exploitative purposes, but what if someone was in a situation where they did need batteries, for instance. Each major store they went to was sold out, and not just of batteries, of pretty much everything. But said person, after looking for a bit, was able to find a small Mom and Pop shop that did have batteries but had marked them up 5 times the normal amount. Yes, there would be some grumbling about the price, I have no doubt. But I also do not doubt that that person, in the end, would be grateful that they were actually able to purchase those much needed batteries, albeit, at a price many others found unacceptable.

Now that scenario is just a hypothetical, although I'm positive this situation has played out before. But to me, this is just the free market system at work. A store owner should be able to place whatever price they want on their goods but, of course, they will also have to live with the consequences of the resulting customer participation. To me, the more dangerous infringement would be if the government came in and said the store owner had to offer a product at a set price or they would be penalized.

But again, to me, the larger picture is in a free enterprise system every store owner should be able to operate according to their own prerogative. In the end, as each merchant operates this way, some with lower prices, some with higher prices, more people will have their needs met, even the last minute shoppers. And that's how I see it.

WW.

[cris]

Now that scenario is just a hypothetical, although I'm positive this situation has played out before. But to me, this is just the free market system at work. A store owner should be able to place whatever price they want on their goods but, of course, they will also have to live with the consequences of the resulting customer participation. To me, the more dangerous infringement would be if the government came in and said the store owner had to offer a product at a set price or they would be penalized.

But again, to me, the larger picture is in a free enterprise system every store owner should be able to operate according to their own prerogative. In the end, as each merchant operates this way, some with lower prices, some with higher prices, more people will have their needs met, even the last minute shoppers. And that's how I see it.

WW.

I see what your saying Wally, and wholeheartedly agree a Govt has no place

in this scenario......A business owner is the only one that should be able to decide

the value of his goods. Whether they be outlandish, or free.....The Free Market

is well suited to handle either situation.

[coorslite21]

I don’t believe the people should be gouged either. The fix is to get more product in faster tothe affected areas….so it is all available to everyone. Fixing the infrastructure in a disaster areais the first thing you do…….get electricity to those gas stations first…energyis a main requirement to fixing any crisis…...bring in large generators if youhave to…..The National Guard has Tanker divisions all over the country……..fillthem all up and send them East…(Google national guard tankers)……..I guess thegovernment leaders can walk aroundhugging people for the photo opps to be shown on the news…….me…….I’d rather see news coverage of a convoyof trucks filled with gas, water and food headed into the affected areas…muchlike happened with the support Walmart provided during Katrina…..

oddly enough.......Walmart was there ahead of the Federal government with aid and supplies.......a pretty good indicator that big Gov't isn't necessarily the answer to any of this countries problems....

++++posted picture of Walmart convoy here failed++++

On the other hand……If I am a small business owner…..

Pricing can be looked at as a supply and demand problem………ifI own a gas station ……(going to use small round numbers for illustrationpurposes)……..and I have a tanker come in every day with 1000 gallons of gas…….andevery day I sell those 1000 gallons at a profit of 10 cents per gallon I make$100 a day….or $700 per week………so all of the sudden I find I can only get 2deliveries a week……..well……my overhead and daily costs stay the same……so I reallyneed to increase my margins so that I as a business owner can stay even….

Praying for all those affected on the East Coast……I fear manyare in for a long painful recovery…

[Goldiegirl]

Is the the pic of the Walmart Convoy during Katrina's disaster?

Read the story here.

http://beforeitsnews.com/libertarian/2012/10/only-big-government-can-save-us-from-big-storms-says-the-new-york-times-ummm-really-2463302.html