Price “Gouging” Encourages Demanders to Conserve and Suppliers to Supply

(p. A17) . . . price hikes are a response to scarcity, and signals that reveal the true severity of scarcity are critical during storms and other crises. Price hikes let consumers know that fuel is scarcer than it was. Price hikes prompt consumers to use fuel more judiciously, buying less gasoline than they would at a lower price. They take fewer unnecessary trips, diminishing pressure on supplies. Price hikes also create a financial incentive for suppliers from outside the area to move their product into high-demand zones. As supplies return to normal, so do prices.
. . .
Year’s revelers in New York City welcomed 2015, Uber’s surge-pricing algorithm stopped working for nearly 30 minutes. Without the guarantee of extra pay, drivers had little incentive to brave New Year’s traffic. Requests spiked 300%, wait times doubled, and the rate of completed trips fell 80%. People who really needed Ubers–and would have been willing to pay surge pricing–couldn’t get a ride.
. . .
Price increases are an important means of encouraging as many people as possible to cope as well and as creatively as possible with natural disasters. True, the rising price of goods like gasoline can create problems for consumers, particularly the poor. But these drawbacks are negligible compared to the life-threatening shortages that can result when ill-informed public outrage keeps prices artificially low. Even a poor person is better off being able to buy a bottle of water for $10 when the alternative is to have $10 and go thirsty.

For the full commentary, see:
Donald J. Boudreaux. “‘Price Gouging’ After a Disaster Is Good for the Public; If government prohibits suppliers from charging more, consumers hoard, exacerbating shortages.” The Wall Street Journal (Weds., OCT. 4, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the commentary has the date OCT. 3, 2017.)

One thought on “Price “Gouging” Encourages Demanders to Conserve and Suppliers to Supply”

  1. “when the alternative is to have $10 and go thirsty”

    In the real world, the politics will get “interesting” with respect to folks who *don’t* have $10 to pay for what normally costs $1 or $0.10, and will therefore go thirsty, or be stranded, or worse. Then, also be aware of simple resentment. Then, aggravate the anger with runaway inequality so extreme that the elites running the show will not be inconvenienced in the slightest by any likely level of ‘gouging’. Then brace for a social explosion.

    All told, it seems fatuous to expect very many people to be happy about being charged, say, an entire car payment just to get home across town from the holiday party. (It seems even more fatuous to expect happiness when the ‘gouging’ comes as an ongoing life-upending surprise, as with I-66 in Virginia.)

    It helps to instead ground oneself in reality. After doing so, it’s ridiculously easy to imagine the relevant government and/or employer simply declaring, for example: “If you wish to be allowed to drive a taxi at all, then you will make yourself available, to some specified extent, even at times that may be inconvenient for you.”

    Indeed, such rules and regulations are utterly banal and commonplace. Nary a soul would weep for Uber if it and its drivers were regulated – even rather harshly – in such a manner. Of course, some souls would become exercised over the minor economic inefficiency of such regulation, but they would number far too few to matter.

Leave a Reply

Your email address will not be published.