After a hurricane, water sometimes goes for $100 per bottle. While that seems like price gouging...
At $100 a bottle I'm going to be loading up my SUV with as many water bottles as fit and I'll be driving to the disaster area. I'll take work off, maybe even risk getting fired for that type of payday.
Is it unethical? Some people would say so, I did make tens of thousands off of a disaster. But on the other hand, if people were dying because of a water shortage, I made tens of thousands of dollars saving lives. I probably wouldn't have done that without the financial carrot.
That's true only if you can readily bring in new supply to compete with existing suppliers. But if market entry is difficult or impossible--on an island and unable to quickly arrange transport--then no price is sufficient to bring new supply to bear on the market.
Price gouging in this context might imply existing suppliers with more than enough supply to keep water at affordable rates until new supply comes online, but who choose to charge exorbitant prices simply because they can. Or more realistically, they charge just below the price at which outside suppliers could profitably enter the market given the temporarily enormous transaction costs (e.g. transport) in emergency situations.
Furthermore, when discussing essentials such as water, society cannot tolerate a system that explicitly puts people into conflict. Maintenance of law & order requires a minimal degree of equal treatment regardless of circumstance as part of the social contract. And while we can argue that a $100 bottle of water might help to ensure that, e.g., only the severely sick receive water because, facing imminent death, they or someone close them is willing to pay the price, often the price may far exceed what the impoverished are capable of affording, no matter how they value it. Again, maintenance of the social contract--incentivizing the impoverished not to begin violating property rights--is often a collective action problem and not something free markets can ensure.
I agree that people use "price gouging" far too liberally and don't appreciate how price signaling works to moderate supply and demand, but there are situations where free markets cannot adequately serve a population.
Even if you can't quickly bring new supply into a market, allowing prices to rise to reflect the new supply/demand equilibrium prevents (or dramatically reduces hoarding).
No one goes to a ballgame to stock up on $5 bottles of water...
Force retailers to keep bottles of water at $0.50/bottle and the sensible thing to do post-disaster if the water supply is uncertain is to buy all of them. In the worst case, you bought something at a normal price that won't spoil essentially ever. In a not unexpected case, you have secured a supply of water for yourself and family and have something that may be barter-able for other supplies that you might need.
Congratulation, you just noticed obvious problems of a rule like "don't change prices at state of emergencies". Thus, no reasonable/battle-tested actual regulation will have such a rule. Surprisingly, simple principles like "free market", "planned economy"/"communism", "free speech", "equal opportunity" etc cannot solve every problem on their own and we tediously need to balance all of those tools for the best possible outcomes for society.
Here a compromise might be something like caps on price increases (maybe max 500%) and some mild rules to prevent hoarding. I remember reading something like that in actual law, but it's been a while and I'm not sure about details anymore.
It's also interesting many forms of disaster relief are provided by the governments or non-profits instead by the free market directly. This development seems like a good indicator that free markets might have significant drawbacks in such situations.
And yet, you have people like the AG of Texas threatening to investigate any business who raised prices by more than 10%. Actually happened; not theoretical.
[Illegal to sell] fuel, food, medicine or another necessity
at an exorbitant or excessive price
The only thing that might be worse than leaving the standard so open-ended is actually specifying hard numbers.[1]
I wonder what the caselaw looks like, and what are some actual price multipliers involved in successful and failed prosecutions.
[1] Sometimes vague standards like that are deliberately designed to incentive conservative behavior while permitting equitable treatment (give defendant benefit of a doubt) in actual disputes. Being scared you could easily run afoul of the law is partly the point. That works better when designed for enforcement by private plaintiffs where quantifiable harm must plausibly have occurred. It's prone to abuse when enforced by regulators preemptively as there's no limiting factor of manifest harm. If everybody was happy to pay $50, no harm no foul. If somebody's grandmother passed out from dehydration because she couldn't afford a bottle even though the shelves were full, then not only do we have harm but we have a concrete context to gauge "excessive". Preemptive enforcement lacks these contextualizing facts.
SUV perhaps wasn't the best example, because SUVs often can't get to places that need water - if they could, SUVs would be bringing water to that place.
At a $100 water bottle price though, I can literally afford to use a helicopter to bring in water. At $20 per water bottle, I'm not sure I could afford to use a helicopter to bring water in, especially if I have to use hours of fuel in each direction.
I agree that you have to keep order. People who think their life is at risk will get violent and reckelss, and we need to limit that. But if you hit a point where water is worth $100, you are probably already past the point of keeping order.
You're missing the fact that under a scenario where supply is restricted, increasing prices also discourages those who already supplied themselves from exausting the supply. I mean, if water is 0.10€/bottle then I'll gladly buy the whole supply with my pockey change just to avoid any chance I might feel slightly peckish.
How does price-fixing solve that problem?
However if the same bottle is sold for 1€ or 10€ then I'll think twice before pulling out the bottle, and I might even open a stand to sell part of my provisions for less to undercut the competition.
You forgot to mention any downside possibilities. You made tens of thousands selling water to people who had spare money and maybe just kept the water in reserve doing nothing, when people with no on-hand money potentially died for lack of clean water.
IMHO, market transactions work poorly when both actors can't walk away from the transaction. ie. when the free market has significant constraints in the "free" precondition.
Allowing gouging means resources go to people with money in an completely disjoint optimization function vs an optimization for valuing human life in an emergency. I think that's not only inefficient, it's unethical.
In one system, water is apportioned according to ability and willingness to spend, and the supply goes up as sellers arrive to take advantage of high prices. People also don't waste water they don't need (e.g. for washing) even if they have the money; they sell it.
In the other system, water is apportioned according to who can get to the store faster, and supply never goes up because nobody has a reason to restore it. People use drinking water for washing if they have it, because it's not like you can sell it anyway.
In both scenarios the is significant inequity (whether by money or ability to get to a store fast and fight/negotiate for water). But overall, many more people suffer in scenario 2. This is obvious given all the suboptimal water use in scenario 2.
It's hard for me to understand why you'd prefer a scenario where obviously more people suffer.
What about people that literally can't afford to spend? In disaster areas with price gouging the people that pay the premiums are the rich and more well-off. The poor and those often most affected by hurricanes not only can't afford the gouging, but they also suffer the most by price gouging.
If a poor family only has $500 to their name and has to spend $100 to buy water just to survive, they've blown 20% of their total networth just to survive. A middle-class family spending $100 of 15,000 is far more likely to not be affected.
It's hard for me to understand how many people on HN can't fathom that price gouging affects the people most hurt by disasters. I don't care if price gouging means you'd gather up more supplies and head to a disaster zone because you're still taking drastic advantage of the poor for personal profit. Countries like Japan don't pull this same shit, so it's too bad that we rationalize our greed as being 'for the greater good'.
The bizarre libertarian point of view that you are arguing with says that poor people have the freedom to not be poor, and should be happy to sell all of their earthly possessions so a hero selling $100 bottles of water can be compensated for his bravery.
We all have a moral duty to use our franchise as citizens to keep these points of view out of government.
But we have that problem as a capitalist society with or without “price gouging”. And we have a solution for that problem too – charities and the government giveaway or subsidize essentials for people who can’t afford them.
If we allow the price of water to rise when supply is constrained, people who can afford the higher prices will use water more conservatively and board less, and people will still give it away to those who can’t afford to buy it. But people won’t have to wait in line all day to get their ration of water, and there will be incentives to create temporary channels to improve the supply of water even if those channels couldn’t be supported by the normal price of water.
The choice isn't between spending 20% of their net worth on water and getting it at usual prices. The choice is between spending 20% and not getting any water at all.
Another issue is that it starts to become more coercive a well, especially with vital resources. Taken to an extreme it amounts to literal duress. For instance you can't demand that someone sign over all of their wealth to you if you rescue them when they are in distress or else you'll leave them to die in the desert. An extreme example admittedly but illustrative of why there needs to be an upper limit somewhere. The precise agreement of 'when' is subject to some debate itself.
That proposition is not so extreme, and people do awful things when set loose from the rules by disaster or war.
There are thousands of stories where death, rape, theft, looting, etc have used by folks in positions of power to get what they want in these situations.
The obvious answer is to have competent government actors who can act quickly and protect human life without a financial incentive and disengage as situations improve.
> For instance you can't demand that someone sign over all of their wealth to you if you rescue them
You can demand all that and more if in the US healthcare market if the medical GoFundMe category is any indication. But that is perhaps too much of a digression...
But you can; whether you should, or if it is a decent thing to do, is a different matter.
Placing an upper limit means that you are less likely to be rescued at all, if the potential rescuer happens to not be a nice person (or is very risk-averse and rescuing you involves some risk).
In other words - if the person is nice, you do not need to have any limits, as they would not abuse the situation anyway. If they are not nice, with the limits they will not rescue you, but without, there is a chance that they will be overcome by greed and so will rescue you.
when you price cap what you are doing is telling shop keepers and warehouse owners that there is no purpose to risk your safety and open back up until things return to normal because you cant make extra profit so they just stay home and no one gets the needed supplies. When you let them profit at least those with money get supplies. The choices really are either no one gets supplies with price caps or only those with money get supplies when gouging is allowed. If supply was capable of reaching everyone then prices would quickly return to normal. There is no fair system of delivering limited supply and high demand without raising prices. If you come up with one please claim your noble prize as you would have the solution to world hunger and poverty
> when you price cap what you are doing is telling shop keepers and warehouse owners that there is no purpose to risk your safety and open back up until things return to normal because you cant make extra profit
As a side note in this debate : the choice isn't between selfish people that wants to make money and nice caring people sharing water for free. You can have both of it : no price cap => free marketer and good samaritans supply water from the exterior of the zone AND the state helps poor people / those who can afford to buy more bottles can share them with their poor neighbors (might even pay them back later in their life if they make it : arrangement between people is not the concern of the water supplier).
> At $100 a bottle I'm going to be loading up my SUV with as many water bottles as fit and I'll be driving to the disaster area. I'll take work off, maybe even risk getting fired for that type of payday.
So would hundreds of other people, which would get in the way of actual relief efforts and probably cost lives. In fact, for enough money, you could even lobby the government to ensure that you would profit off of future disasters.
> I probably wouldn't have done that without the financial carrot.
Probably not, but others would have. And those organizations, whether private or government are also willing to help the people where there is no financial incentive to do so.
In the example you give, the result would be those that have the financial resources would stockpile the water, while poorer folks would simply die.
There are some areas like disaster relief, education, and the provision of medical services where the free market has shown itself to be woefully insufficient.
> which would get in the way of actual relief efforts and probably cost lives
or that people would not need to have any "actual relief effort" because the savvy businessman will respond to price signals and bring in the needed goods by themselves.
In this case, the free market is a poor substitute for proper disaster preparation. Compare the results of hurricane Katrina in Cuba and the U.S. for example.
My country is literally one bad storm away from turning into Atlantis. Puerto Rico is not a disaster, hurricanes are a part of the weather over there and every American should be ashamed of what happened. Sing God bless America because it sure as hell isn't going to be saved by its people.
At $100 a bottle I'm going to be loading up my SUV with as many water bottles as fit and I'll be driving to the disaster area. I'll take work off, maybe even risk getting fired for that type of payday.
Is it unethical? Some people would say so, I did make tens of thousands off of a disaster. But on the other hand, if people were dying because of a water shortage, I made tens of thousands of dollars saving lives. I probably wouldn't have done that without the financial carrot.
The free market is a very powerful thing.