(p. B1) On its face, the very idea of price gouging, especially during a natural disaster, feels outrageous. Indeed, 34 states have anti-gouging laws meant to protect consumers.
However, in a small slice of the world of economists and businesses, there is a fascinating debate about the topic — with many arguing that price gouging is actually a good thing.
(p. B6) “Price caps discourage extraordinary supply efforts that would help bring goods in high demand into the affected area,” Michael Giberson, an instructor with the Center for Energy Commerce in the Rawls College of Business at Texas Tech University, wrote in an opinion piece from several years ago that was widely circulated around parts of Wall Street this weekend. Meanwhile, he suggested, “You discourage conservation of needed goods at exactly the time they are in high demand.”
He added, “In a classic case of unintended consequences, the law harms the very people whom lawmakers intend to help.”
Consider this scenario, as described by Matt Zwolinski, the director of the Center for Ethics, Economics, and Public Policy at the University of San Diego: If a hotel that normally charges $50 per room were allowed to double the price to $100 a night during an emergency, “a family that might have chosen to rent separate rooms for parents and children at $50 per night will be more likely to rent only one room at the higher price, and a family whose home was damaged but in livable condition might choose to tough it out if the cost of a hotel room is $100 rather than $50.”
The result, he contended in a paper titled “The Ethics of Price Gouging,” is that allowing higher prices “increases the available supply — as a result of consumers’ economizing behavior, more hotel rooms are available to individuals and families who need them most.”
For the full commentary, see:
Sorkin, Andrew Ross. “DEALBOOK; Price Gouging Can Aid Victims? Why Some Economists Say Yes.” The New York Times (Tues., Sept. 12, 2017): B1 & B6.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Sept. 11, 2017, and has the title “Hurricane Price Gouging Is Despicable, Right? Not to Some Economists.”)
The article by Zwolinski, mentioned above, is:
Zwolinski, Matt. “The Ethics of Price Gouging.” Business Ethics Quarterly 18, no. 3 (July 2008): 347-78.