The Corporate Law Group

In Defense of Price Gouging

With every hurricane comes stern warnings from economically ignorant politicians about the horrors of, “price gouging,” as they moralistically threaten to, “prosecute,” anyone who tries it. But thinking straight about it, price gouging is a disaster victim’s best friend. For a dozen reasons. And politicians who actually gave a damn would invite in as many vendors as they can to sell whatever they have at whatever price they want, no matter how high.

Imagine that you are a trucker or farmer and can drive your produce through clear and pleasant skies or through a hurricane. If your apples fetch $0.35 each which road are you going to take? Too bad for the hungry consumers in the hurricane. Sure, hundreds of really good-hearted truckers may drive their apples to the hurricane, but what if they don’t?

Now offer $1.00 or $1.50 per apple to the hurricane victims and maybe they get all the apples they want too.

And if you did drive them into the hurricane to sell them for $0.35 what stops the first customer from buying all of them? After all, no one knows when the next apple shipment will arrive. At $5.00 each, maybe the hurricane buyer will risk that more, cheaper, apples will make it in before too long. One apple at $5.00 is tasty. A bushel is bankruptcy.

Markets, when unmolested by government meet the demand, whatever that demand is.

How do you prevent the evils of price gouging? Ensure that more price gougers show up. The more price gougers, the less prices are gouged. It’s just that simple.

Contrast that with what happened in Puerto Rico. FEMA delivered millions of water bottles on pallets following hurricane Maria. But since they were not being managed by private actors in a free market there was insufficient local infrastructure to distribute the water bottles and they sat for months on a runway spoiling. No price gougers would ever let their product just sit there. Only governments are that incompetent. Not their money. What do they care?

Government is a clumsy blunt instrument, not nimble, like thousands of market participants. If politicians loved their citizens they would say, to the world, in advance of the disaster, “Hey, we’re about to be without electricity, clean water, batteries, gasoline, and toilet paper. As soon as the storm passes through please come here to sell us whatever you have at whatever price you want to charge.” That’s the best way to avert shortages following a disaster. But politicians want to appear sympathetic, rather than actually doing a good job.