Gouging, Predatory Pricing, or Collusion

Cartoon: Demand and Pricing

Price Gouging Form

source

Fearing increases in the prices of WATER (name of item in short supply) as a result of a MASSIVE PIPE BREAK (type or name of disaster), officials in MASSACHUSETTS (affected state or municipality) have declared a state of emergency whereby restrictions on "price gouging" are now in effect. According to ATTORNEY GENERAL MARTHA COAKLEY and GOVERNOR DEVAL PATRICK (politicians or law enforcement officials), the law is designed to protect innocent consumers from "unconscionable" increases in the prices of WATER (or food, gasoline, ice, electric generators, and home-repair services). The unintended, unseen consequences, however, are predictable, unfortunate, and avoidable.

source

Boston's Water Shortage

THERE WASN’T much Martha Coakley could do about the massive pipe break that left dozens of Greater Boston towns without clean drinking water over the weekend. So she kept herself busy instead lecturing vendors not to increase the price of the bottled water that tens of thousands of consumers were suddenly in a frenzy to buy...

It never fails. No sooner does some calamity trigger an urgent need for basic resources than self-righteous voices are raised to denounce the amazingly efficient system that stimulates suppliers to speed those resources to the people who need them. That system is the free market’s price mechanism — the fluctuation of prices because of changes in supply and demand...

Letting prices rise freely isn’t the only possible response to a sudden shortage. Government rationing is an option, and so are price controls — assuming you don’t object to the inevitable corruption, long lines, and black market. Better by far to let prices rise and fall freely. That isn’t “gouging,’’ but plain good sense — and the best method yet devised for allocating goods and services among free men and women.

read the essay

Economic Ignorance and Price Gouging

President Bush Saturday said officials will ensure gasoline stations don't gouge customers after Hurricane Ike, but with some prices near $5 a gallon, some consumers were not so sure.

Dozens of iReport.com users complained of rising gasoline prices Friday and Saturday. Sean Kennedy, of Knoxville, Tennessee, took a photo of a Knoxville station displaying a $4.99 per gallon price for regular gasoline on Saturday.

The previous day, he said, he had bought regular gas at the station for $3.59 a gallon.

read the CNN story

My thoughts: Pure economic ignorance. A complete lack of understanding of the concept of supply and demand.

Other Economists:

On Price Gouging by Donald Boudreaux
Prices are not set arbitrarily. They are what theyare for a variety of reasons. These reasons are summarizedby the two words “supply” and “demand.”...

Therefore, the fact that is unfortunate is not the higher price; it’s the underlying reality reflected by the higher price. That a natural disaster destroyed supplies and supply lines is indeed unfortunate. But this is the reality. Because, as Thomas Sowell reminds us, reality is not optional, we ought to deal with it as best as we can.

read the entire essay

Mitigating Disaster:Abolish FEMA and Let Gas Prices Rise by Dwight Lee

The higher prices we paid for gasoline reflected the fact that the hurricanes temporarily reduced gasoline supplies. After the hurricanes there was not as much gasoline available as consumers wanted at pre-hurricane prices.

Furthermore, more gas was suddenly needed along the Gulf Coast to bring in rescue personnel, evacuate the homeless, help clear the rubble, and get on with reconstruction efforts. The higher gas prices motivated tens of millions of drivers to conserve gasoline, allowing more to be available where it was badly needed. No matter how much sympathy we expressed for the hurricane victims, it is naïve to think we would have reduced our gas consumption much, if any, without a price increase.

read the entire essay

Anti-Gouging Hysteria by Jeff Tucker
In my own neck of the woods, I've never seen such hysteria about the supposed need to fill up tanks. There was a wild rush on gas stations, which of course produced shortages very quickly, and the prices responded as best they could. One wonders how much gas might have been left for those who really needed it if the anti-gouging police weren't on the patrol.

read the post

Fill-in-the-Blank Article About Price-Gouging Laws by Art Carden
Natural disasters wreak unspeakable human tragedy, and we can decide between interventionist policies that make things worse or noninterventionist nonpolicies that allow rapid recovery...

The important point, as always, is that the restrictions on price gouging harm precisely the people they are supposed to help...

A price control by any other name is still a price control, and price controls have always served to compound the miseries wrought by natural disasters.

read the entire essay

A Price Gouging Reader

Wholesale Gas over $5

Wholesale gasoline prices in the U.S. Gulf topped $5 a gallon on Thursday as the region's oil refineries began closing down ahead of Hurricane Ike, adding to fears that U.S. drivers could see pump prices rise again.

Prompt spot gasoline prices in the U.S. Gulf traded at a record $2.50 a gallon over their gasoline futures benchmark, which itself traded as high as $2.83 a gallon in active trade on the NYMEX exchange, putting the price tag on a wholesale gallon of gasoline as high as $5.32 per gallon.

"The worst-case scenario for the hurricane season is what we're looking at with Ike," said Chris Jarvis, senior analyst with Caprock Risk Management.

source

My thoughts: Supply and demand. Those who continue to scream price gouging are wrong.