Price Gouging: Not just for campus food anymore
September 30th, 2007 by Matt HittleHere is my second column published in my university’s newspaper.
Last week, my economics class discussed price gouging. Apparently, some gas station owners are being prosecuted for raising gasoline prices before and after Hurricane Katrina.
As we all know, Katrina left thousands homeless and generally devastated the south. Thank God that the government came to the rescue- by investigating high gas prices.
After the hurricane, few offenses were more reviled than gas price gouging. Politicians staged witch hunts, railing against the wicked oil industry and its unquenchable lust for profit. The media vilified any supplier accused of raising prices, and the American people believed the hype.
The truth behind the hype is that price gouging is a myth. In a free market like ours, the government need not ration products because prices do that automatically. Normally, if a product is scarce, the demand will be higher, and the seller will charge a higher price. For example, diamonds are scarce, in high demand, and consequently, expensive. I’ve never heard of widespread diamond price gouging.
To use my professor’s example, imagine that you need to walk from North Complex to Slagle in the rain. That’s quite a trek in a downpour. Suppose I stand at the entrance to the dorms with a box of 2 dollar umbrellas, selling them for 10 dollars each. Am I gouging the price? No.
You see, I’m not forcing you to buy the umbrella. We both know that you could get it at Wal-Mart for 2 dollars, but you choose to buy from me because it’s more convenient. If you think convenience and dryness are worth 8 extra dollars, then buy an umbrella from me. If not, then don’t. It’s your choice.
How does all this relate to gas prices?
Suppose you own a gas station the day before a major hurricane landfall. There’s a line of cars around the block waiting to pump gas. What do you do?
Well, think about it. Demand for gas is way up, but your station has a limited supply. What’s worse, you have no idea when the next shipment will arrive. The only way to ensure that people who really need gas can get it is to raise the price. People who truly need the stuff will grudgingly pay a few bucks more; those who are just freaking out over the hurricane will go find cheaper gas. In the words of economist Jerry Taylor, “People who value gasoline most are willing to pay higher prices than those who value it less. The former get the gasoline — the latter to some extent go without.â€Â
This is my point. In a free market, higher prices don’t necessarily cheat people out of money because customers have the simple freedom to go elsewhere. If you buy a product at a higher price than normal, you either truly value it, or don’t want to shop around. Don’t get mad- it’s not the government’s fault that you didn’t shop around. It’s yours. Live with it.
October 8th, 2007 at 2:27 pm
Glad to hear you are an undergraduate, because this is a deciededly underthought piece. First, you misunderstand a basic tenet of economics, Price rises as demand increases and/or supply decreases. That is all well and good on a macro scale. On a micro scale it is price qouging. The gas station owner in your example is simply making a killing on a momentary supply disruption. The fact that he doesn’t know when his next supply is coming is immaterial. He will sell out of his supply more quickly than he would have otherwise, and may spend some time without a resupply, but he will still make the same profit unless he raises his price. Raising his price doesn’t assure that those who “value” gas more will pay it. It assures that those who can afford it will pay it.
As someone who rode out Katrina, let me assure you, price gouging does exist, has nothing to do with the free market, and should be punished.
October 15th, 2007 at 4:02 pm
art’s just mad because he hade to pay a higher price. mabye the government should have stop taxing gas after katrina instead of looking for “price gougers”. $ 0.47 per gallon
November 6th, 2007 at 6:16 pm
ryan your lack of awareness is showing…..len uva65
May 12th, 2008 at 4:02 pm
Interesting post. The gas companies create these scare tactics that consumers fall into. It’s how they make their billions of dollars.