Legalize Price Gouging

People tend to associate price gouging as an evil act of corporate greed taking advantage of a situation to personally gain while ripping apart everyone else, but I have a different perspective. Price gouging is a natural response that benefits everyone. I say, legalize the practice.

First, we must examine the side effects of price gouging. In order to justify the imposition of a law, we need to have a reason other than "well that's just evil." People have to pay more money for whatever the scare resource is (say, for example, water -- due to a pipe break). Perhaps a few people won't be able to afford it and they'll die of thirst. This is very unrealistic, however, seeing as the normal price of water is probably a dollar while a "gouged" price would be closer to three dollars. For the sake of argument... hell, let's say it's $20 a bottle. Very few people are not able to pay $20 for something they need -- even beggars on the street can make $40-$80 in a day from begging. So, no one is really going to die because of thirst due to price gouging, but they'll probably only get the amount of water they need versus having a super hydrated diet, or being able to hoard the stuff. This could be seen as a bad thing -- people should have lots of water to drink. Furthermore, is it really justifiable to pay $20 for water, a basic need for humans? Why should we allow these companies to make huge profits while we have to pay $20 for a bottle of water?

Now, let's examine the effects of outlawing price gouging. After the pipe break, no one knows how long they'll have to go without water, and everyone wants as much as they can get their hands on. A store sells the water at a dollar a bottle -- the first selective bunch of people buy them out, and everyone else is stuck dry. As rational people, we think in terms of self-interest, and it's in our self-interest to obtain as much water as possible for as long as possible. Although you can have faith in the people, they're not exactly thinking about charity right now -- they just want their water. In this situation, there's plenty reason to hoard the water. Now, the only time everyone who wasn't part of the lucky bunch can now buy water is when there's another importation of water that has already been prescheduled well ahead of time. There is no motivation for the shipment company to get there any faster -- they already have a schedule and it would be very expensive for them to change their schedule last minute merely because of a pipe break at some location. Furthermore, even if the shipment companies did change the schedule, costing them money, it wouldn't really matter -- there would still be a selective bunch of people who would get the water and everyone else would be dehydrated for as long as the pipe was broken.

Going back to what would happen if price gouging were legal... everyone would only take what they need which would leave more for everyone else. The shipment companies would deliver water faster if they got paid substantially more money. Instead of having only the first few people who got to the store get water, everyone who can shell out $20 gets water. There's a better constant flow of water, everyone gets water, and there's no worries about no water being anywhere near town. Paying all that money for a bottle of water may be annoying, but not as nearly as annoying as dying of thirst.

It's a very basic principle of economics: supply and demand. If the demand goes up, price goes up, so supply goes up. If demand goes up but the price doesn't go up, supply doesn't go up, so there's a demand deficit. When the government intervenes in this precious free market system of allocating scare resources through supply and demand by preventing supply while still maintaining demand simply, it leaves less people with water. Thus, price gouging benefits everyone and should be legalized.

 

my friend's dad was fired from his job right after 9/11 because the gas stations in his area were charging 10 to 20 dollars a gallon for gas, and he could not afford to buy gas to get to work. I don't think he benefited from the scumbags overcharging to take advatage of a national crisis.

 

It's already been done. It's called "the corporation", "the CEO", "the crapitalist".
We're in the final throws of its evil now.

 

it already happens with oil, when there are wars american oil companies raise gas prices

 

that's becuase they had no competition. Domestic oil competition is difficult because of the heavy restrictions on domestic drilling. this would never have happened in a free economy. price gouging wouldn't happen in a free market either becuase it would create a heavy demand for competition. price gouging can only be sustained when a company has a monopoly...and companies only ever have monopolies because government grants it to them. there is not a single instance of a monopoly ever occuring in a free market in the history of mankind...they are not natural occurences, and neither is price gouging.

Bottom line - price gouging is a product of monopoly or govt privilege, which itself is a product of socialism.

 

This has to be one of the stupidest threads I have ever read, congrats OP!

 

I know it would require thinking, but care to elaborate on why?

 

Wow, this is a really stupid thread with no logic in it whatsoever. The reason price gouging doesn't work in the modern age is because there is NOT an alternative resource available. 200 years ago, if a horse manure seller gouged his prices (as the only horse manure seller in town), somebody could rise up, get ahold of some horses himself, and sell increase supply to force lower prices. That theory of capitalism held water even through the latter portions of the industrial age.

However, with patent rights in place, free market monopolies in place, and every nook, corner and discovered resource currently owned and controlled by corporate interests, price gouging becomes nothing more than the practice of creating an artificial demand for something by intentionally depriving it from people who have a need. IE, oppression of the poor to create more wealth for those that already have it. Say what you want about its "value" in driving an economic success, but if you think explosive economic success while making people suffer is better than moderate economic success (though still success) while sharing and conserving resources to benefit the greater good, then you are a heartless moron.

Our resources in this world are finite, and therefore, our economic demands for success and wealth should be finite. Its a fantasy world to believe that there is and should always be room for infinite growth. And now that businesses have a complete hold over the resources of the world, someone needs to be an intermediary to prevent them from selectively distributing those resources to whomever they choose, while depriving everyone else. Unless you want all decisions in this world to go through corporations?

Answer these questions.

If a mega-entity were to corner the market on all agriculture, (ahem, Monsanto, ahem) patents on agriculture, and farmable land, where could you build enough of a market to "compete" with that entity in a fair enough way to bring prices down?

If a mega-entity cornered the market on all major animal manufacturing, can you forage and scrounge for food on your own WITHOUT having to buy a hunting license or break any trespassing laws?

If a mega-entity were to corner the market on pharmaceuticals and medical helps, could you somehow access the same medication elsewhere in the world from a competing country?

Right now, the answers to those things is no. So as we see deliberate inflation push the price of even common goods beyond the levels of even the middle classes income, we see less ways for most citizens to have ANY legal alternatives. And before you state that "well, once demand drops, they'll be room for competition", realize that these mega companies have created an environment where they can still be profitable even while forcing out competition, dominating patents and resources, AND blocking a large percentage of the masses from acquiring their products. They don't need the traditional form of "demand" to be profitable, yet they are still able to keep competition from rising up.

There is something VERY wrong with that system, and it hasn't happened overnight.

 

Yes, people will be able to pay $20 for a bottle of water because they have to have it, but money is not limitless. If the beggar pays $20 for a bottle of water, that is $20 he won't be able to use for food or other necessities. Also, if everyone is paying $20 for a $1 bottle of water, they will have less money to give to the beggar.

Even at $20 a bottle, there still would be hording, it would just be limited to the rich and no, shipments of water would not come any faster with price gouging than without. You severely underestimate people's altruism.

The trick is to get rid of price gouging and implement rationing. Everyone is entitled to the same amount of water regardless of how much money they have.

 

So Standard Oil in the 19th century was a monopoly because the government gave them the monopoly? Then why did the government it up in 1911?

 

Stupidest thread in the world.

Price gouging is a case of market failure.

The normal response when prices rise excessively is that new competitors enter and offer to supply products at slightly lower prices.

Anything that prevents this is either rent seeking behaviour or natural disaster, in which case either the rent seeking is stopped or price controls instituted.

 

Please tell me the area the friend's dad lived in? Sounds like an exaggeration at best.

Now I remember gas spiking at that time, but I don't remember it even doubling.

 

Of course they would. It's not altruism, but a lower priced gouger. After the first phase of gouging, the other gougers will come into business, and it will be worth their while to go out and get more water, and sell it for $5 a bottle, which will eventually lower to $2 a bottle, and then normal price.

Then there is no incentive for others to bring it in for a profit.

 

http://mises.org/daily/2694

 

Liars and Lies. Why do you repeat them? - Standard Oil is documented as a monopoly that abused its market power in a variety of ways.

http://en.wikipedia.org/wiki/Standard_Oil#Monopoly_charges_and_anti-trust_litigation

 

It still does today. Capitalism was abandoned at the end of the industrial age.

There is no such thing as a "free market monopoly". That's an oxymoron. Monopolies are only ever the product of government subversion of the free market.

False. Please provide evidence that all of the water in the world is controlled by corporate interests.

This doesn't make any sense. You're contradicting yourself here, because explosive economic success benefits everybody. Explosive economic success doesn't happen when monopolies are created by the government. Economies that operate for the "greater good" are Collectivist by nature and always fail because they do not prioritize the good of the individual over the good of the greater number. In the end, both are destroyed. So I strongly disagree with your socialist opinion that we need to artificially slow the economy down because it benefits the "greater number". Slow economies do not benefit the individual, and because of that, they do not benefit the greater number.

I don't believe this for one second. What resources are you referring to that would act as a limiting reagent to economic growth?

Baseless claim.

What you're saying is logically impossible. If a resource is scarce enough that it can be totally controlled by a few select interests, then there wouldn't be the kind of demand for such a scarce resource that you're insisting would take place. It has absolutely no basis in economic reality.

No, through the individual. But we already know that corporations call a lot of the shots thanks to the liberal "progressive" movement of the 20th century.

Monsanto receives large govt subsidies every year. Like all of the large agricultural companies, they use this to squash competition from small farmers out of existence. Thank you for providing evidence to support my point that all monopolies are government inventions.

Agricultural patents would not enable entities to corner the farming market. Corporations could never control all farmable land in existence without special government privilege.

Again, that would never happen without some form of government privilege. You have been deceived by progressive propaganda.

It has already happened. No, we couldn't get medications elsewhere becuase it is illegal to import drugs into this country, thanks to big pharma lobbying. That keeps prices artificially high, and allows domestic pharma corporations to hold a monopoly in this country. So what you're saying has already happened, thanks to government subversion of the free market: that would never happen in a free market.

You don't understand what causes inflation. Inflation is caused by artificial expansion of the fiat money supply at a faster rate than goods and services are being produced. The Key word here is "artificial", which means it has nothing to do with the free market. The Federal Reserve controls the money supply and is an independent government agency. To reiterate, inflation is not caused by the free market, but is caused by government.

Why would you think anybody would ever say that? Dropping demand eliminates competition...it's an increase in demand which creates competition.

Only could ever happen with government priviledge.

I agree, that's why we need to ensure that the free market has minimal intervention from government as possible.

 

You are economically illiterate. Try reading the thread (particularly my responses) so you can educate yourself. Price gouging only happens when companies have monopolies. Companies can only have monopolies with some form of government special priviledge or subversion of the free market. Government priviledges and subversions of the free market are tools of fascism/corporatism/socialism, whatever you want to call it...they are the antithesis of the free market.

 

Sure, I'll legalize price gouging as soon as we ban all government collusion with business.

Until then, this is a horrible idea.

 

Most of the controversial claims in the wikipedia article are not sourced. You cannot claim they are liars and lies without debunking the claims made in the article I presented. Your say-so is not good enough.

How about another one that examines the Standard Oil case in more depth than the wikipedia article does:

http://wiki.mises.org/wiki/Standard_Oil

 

I don't think it actually works that way. If price gouging happens, a few people get water (perhaps slightly less water than if the prices were controlled) and everybody else still gets nothing because the price is too high. The water vendors make their money on the wealthy -- who still have to drink water, right? -- and the dehydration of the poor only serves to reinforce the value of the water to the wealthy.

End result, only rich people have water.

 

You guys are nuts. Do you really think that corporations would ever be able to control all of the water in the world (without some form of government interference)?

 

Righteous:

You are the illiterate. There are such thing s as natural monopolies for starters.

The formation of monopolies is via rent seeking behaviour which allows companies to build artificial barriers to entry of new competitors. This results in a form of market failure.

Please find an economics 101 textbook and read it, paying particular attention to the terms in bold.

As for Standard Oil, the references are given in the Wiki article and the mere fact that Standard oil was broken up by the Sherman Anti trust act should tell you that you and your von mises clowns are totally wrong.

 

I commend your thought out response, but I'm not seeing how this is relevant to price gouging. Seems to be just addressing capitalism in general.

So, let's examine the two scenarios:

• Scenario A: Price gouging remains illegal
• Scenario B: Price gouging is legalized

A problem that would arise under Scenario A is hoarding. The first selective few hoard as much water as they can, and no one else can have any. Now, you seem to be suggesting that Scenario B would be just as bad as Scenario A in terms of hoarding because the rich would hoard. However, using very basic math and a little bit of logic, it is understood that if water is twenty times the price, it will be sold twenty times slower. If it's sold twenty times slower, twenty times the number of people can buy water. I find it hard to believe that prices would ever go up twenty times the normal price; however, the higher they go up, the less people hoard. Like I said in my OP, three times the normal number is probably more realistic. However, in terms of hoarding, this still inclines that three times the number of people will have water. As far as hoarding goes, Scenario B is clearly the winner.

Now, let's move to another problem you brought up: the poor. Basically, the argument is that the very poor will not be able to afford a bottle of water and will die in Scenario B. However, in Scenario A, much less people get water at all due to hoarding. So, we may want to calculate which scenario ends up allocating more water. Suppose in Scenario A, 10% of the people who got there first get water and 90% are left dry. In Scenario B, 30% of the people get water, leaving 70% without water, some of which are poor. So which one is the better system in this case? Still, Scenario B, although not so many people would be left dry as I will explain.

Now that we know in terms of merely hoarding alone that Scenario B will allocate the scare resource more effectively, let's go to the other claim I made in my OP which you are not convinced of: shipment companies will deliver faster in Scenario B. I'm not sure what you meant by claiming that I underestimate people ultraism. It may be true -- my OP is assuming that everyone is acting within their self-interest, so I'm not suggesting that anyone has any altruism at all. But are you suggesting that the shipment company will come fast if there's a need out of good heart? That paying extra money will not create an incentive to get more water there faster? I make the case that in Scenario A, the shipment company has no incentive to get there any faster: they will merely follow their already planned schedule. If that means no one is getting water for a week, so be it. However, in Scenario B, if a store is making three times the amount of money, they can pay the shipment company twice as much to deliver the water quicker. The shipment company acts within their self-interest and takes the extra money. The store gets to sell more water and make more money. Additionally, the people have a constant flow of water coming in. So, although in the first day 70% of people may be left waterless, they can buy some the next day in Scenario B, versus in Scenario A when 90% have to wait a few days if not longer.

I suppose it depends on how you define "price gouging," but prices going up because of a disaster is a natural response. The free market's competitive system doesn't lower the prices of everything infinitely, but keeps the prices of everything at its equilibrium. If the demand skyrockets due to a disaster or whatever, the demand curve is being heavily shifted to the right, raising the equilibrium to a higher price and therefore a higher supply.

 

OK. I agree that government intervention creates natural monopolies and causes market failure by barring entry of competitors.

You obviously didn't bother to read the article. They address that issue in particular. Just because the government deemed them to be a "monopoly" does not actually mean they were actually engaging in monopolistic practices.

[ame="http://www.youtube.com/watch?v=8tMHNiDKXFs"]FSAathe1st on Standard Oil - YouTube[/ame]

 

I just assumed that when we are talking about price gouging, we are talking about a permanent implementation of gouging. The real prices of goods and services affected by a disaster are going to increase no matter what. Price gouging implies an artificially high price beyond the natural increase in the cost. Competition will limit the ability for companies to price gouge even in the event of disasters....unless of course there are government issued monopolies which prevent competition from keeping prices in check. Regardless, disasters only create a temporary natural spike in prices, so in a free market, price gouging simply wouldn't happen.

I disagree with your assertion that the free market doesn't continuously lower the prices of everything. I agree that the free market keeps the nominal prices of everything at an equilibrium relative to each other (stable pricing structure), but increases in technology and productivity will always bring the real cost of items down in the economy at different rates. This sort of "price instability", where the real cost of items is coming down, is a good thing.