With the hurricanes pounding the Guld coast regularly, the outraged media always run stories about unscrupulous gas station owners, hardware store proprieters, bottled water dealers, and hoteliers raising prices to take unfair advantage of the victims. But do high prices in a crisis hurt....or help the victims in the long run? Let's take the example of generators at the hardware stores. HomeDepot and Lowes only stock so many generators, regardless of season. It's a fact, if a natural disaster knocks out power for a week in Florida, they can never meet the demand for generators with available stocks. How then is the demand met? Well obviously somebody has to bring generators in from elsewhere, but how do you get guys in say Kentucky to want to, when they have to pay for travel expenses bring them? Answer: by allowing the local prices to rise on increased demand, you create a profit motive for outsiders to bring generators from Ky to Fla. If prices of generators are f$400 everywhere and fixed in Florida at $400, and it costs $500 to rent and drive a flatbed full of them from Kentucky, why would that guy bother to load up and go to Florida? The same problem with anti-gouging laws applies to bottled water, ply-wood, propane tanks, chain saws, you name it.
Suppose bottled water was $1/bottle. In a disaster situation, a family might buy out the entire store. But if the price rose to $3/bottle, that family would only buy what it absolutely needed and there'd be plenty left for others. Additionally, at $3/bottle, trucks loaded with water would soon flood(pun intended) the area, providing water to everybody and lowering the price through competition.
Price fixing winds up hurting those who are intended to be protected, by insuring that the ones who get there first, get all the resources.
What's that you say? "But Ed, it's evil to take advantage of victims of disaster." Nobody's taking advantage of anybody. The market is insuring that the people who buy generators, or water, or ply-wood only get what they absolutely need and don't buy extras because it's relatively cheap. That leaves more to go around for others. And it invites enterprising entrepreneurs from outside to meet the increased demand. Otherwise, once all the stocks are gone, nobody gets any.
The market will efficiently allocate resources every single time if the government doesn't meddle with the system.
2 comments:
The only thing wrong with your argument is that gasoline is purchased by the wholesaler and stored at his site. The events of last weekend came after a speculative comment was made and fueled by the major Houston area refinery shutting down. Gasoline was never in short supply. All of us will now be forced to pony up an ectra 50 cents per gallon in the short run. This pricing situation was strictly out of greed and panic. I saw 1 station lining up cars and giving them a ticket with the price per gallon printed. At a fixed point, the tickets went up in price and each consumer in the "panic mode" paid the asking price or did not get gas. I agree whole heartedly with your points, it just is not exact on this particular situation.
I get the wholesaler point but, don't individual stations set their prices based on what they expect to have to pay to fill their pumps next week, or next month? Gas prices aren't reflective of what that seller paid for that gas, it's indicative of what he'll have to pay to get more at a later date.
The brief panic of last weekend was based on somebody saying something stupid and a bunch of panicky consumers acting on it. That's different than high demand in a crisis forcing prices to rise.
It's just like when the weatherman mentions that it might snow, then all the stupid, panicky consumers rush out and buy up all the milk and bread. Nevermind that any snow we have here in Alabama melts completely by lunch the same day. If there was say, a regional outbreak of hoof-and-mouth disease and all milk-cows were quarantined for 2 months, then that would create actual milk shortages and high milk prices would be appropriate.
But, I accept your point about the gas wholesalers.
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