Price Gouging: A matter of morals, not economics
I'm surprised that no one has called me on the following paragraph, taken from a post earlier in the day:
I had a vague sense of unease even as I typed that paragraph, but it took a mid-afternoon bike ride to zero in on what I'd missed. Simply put, I should have written the last sentence as follows:
Price gouging -- the arbitrary setting of inflated prices with the primary purpose of profiting from a shortage of critical goods or services during a time of emergency -- is morally reprehensible, in my opinion.
As far as I know, there is no technical or economic definition as to what constitutes price gouging. Like obscenity, it's something one recognizes when one sees it...but not everyone sees something in the same way. In some cultures, the flash of a female ankle is considered obscene, but others have very different standards.
Some will argue that the oil and gas industry is an oligopoly and the standard supply-and-demand market constraints don't work, and thus accusations of price gouging in the wake of the recent hurricanes are warranted. I don't agree with the base assumption of an oligopoly, and such arguments seem to ignore the realities of how commodity prices are actually set. Nevertheless, even if the argument was true, a solution remains elusive.
What are reasonable profits? How much could prices rise and over what period of time before price gouging could be charged? How do you factor in legitimate supply shortages? And what goods and services should be covered by price gouging laws? Gasoline? Toilet paper? Diet Coke? iPods?
In the end, attempts to penalize price gouging will likely do more harm than good, because they will inevitably fail to consider the preceding questions. Proposed solutions will be based on political expediency and/or moral judgments, neither of which generally result in good legislation.
Don't take my word for it. Much smarter people than me are saying it much better.
Technorati tag: Price Gouging
Yeah, I agree that the "retail" descriptor was inappropriate; I'm not sure now why I included it to begin with, except that the retail price is probably what would be used to trigger a price gouging accusation. And the cases of so-called price gouging that I'm aware of usually involved retailers jacking up prices of scarce goods like lumber, batteries, bottled water, etc. in the face of an impending or just passed disaster.
Still, I have to respectfully disagree with your assessment of the oil industry's performance, in light of the significant damage to refineries that caused an almost instantaneous disruption of supply of gasoline. No doubt there were anticipatory price increases, but it's hard to argue that they wouldn't have quickly (in only a few days) been supported by actual shortages.
Posted by: Eric at November 10, 2005 09:41 PMIt's funny how everyone is lining up to bash the oil companies now that they're doing well. Weirdly, I don't remember any of these people lining up to donate to the oil companies back when oil was $19 a barrell and the companies were taking it in the neck.
We lost almost a fifth of our church in one year to people moving away back in that time. I think unemployment in Midland was something around 20 percent as well, wasn't it?
Hi, btw. :)
Posted by: Discoshaman at November 11, 2005 07:40 AMbarrell = barrel
Posted by: Discoshaman at November 11, 2005 07:41 AMDisco...you're back! We missed you...
The oil industry has never engendered warm-and-fuzzy feelings from anyone not tied directly to its fortunes. For the most part, those who gain their livelihood therefrom don't want charity when times are tough, nor abuse when times are good...and there have been a lot more tough times than good over the past three decades.
Midland is still suffering lingering aftereffects of downturn after downturn. As you point out, the disruptions have been deep and personal. I don't expect people in other parts of the country to understand or care. And all l I can offer to those who want to take away the incentives to find more oil and gas is a warning: be careful of what you wish for.
Posted by: Eric at November 11, 2005 08:23 AMAbout the publisher
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I think the "morally" and "in my opinion" are implied. Or at least that's how I read it.
I think it's pretty dangerous for consumers to decide what "reasonable profits" as some people are wont to do. At the same time, though, there is little justification in my mind for how quick the prices went up in the fear of the worst, and how they slowly parachuted down once the worst was averted. I've worked in the oil industry and wish it all the best, but even I have difficulty.
I'm inclined to believe that it's not at the retail level, though, but rather believe that it's at the wholesale level. Some of the retailers may have kept prices higher than their ordinary profit-margin, but a little of that is justifiable since many gas stations were probably losing money trying to stay under $3/gal.
Posted by: R. Alex at November 10, 2005 09:30 PM