Friday, January 24, 2014
Price gouging in times of trouble is a good thing
[Regular reader David sent this story in. If I've been over it once, I've been over it a dozen times, the price of commodities during emergencies should be allowed to find where ever the equilibrium exists. The needs of everybody are met far sooner than with price controls or laws making gouging illegal.]
So NPR ran a very predictable story about how a renegade cab company in Manhattan is gouging riders during peak demand times, charging as much as $192 for what should be a $65 fare. As I understand it, these UBER cabs are just individuals who've signed up to give people rides. They can work as much or as little as they like when the dispatcher reports a fare request.
During high-demand times such as torrential rain, heavy snow, extreme cold, etc., regular cabs may not be available so that's when the UBER people swoop in to meet the demand. The catch is that the price for a ride might jump as high as 200% during these high-demand times.
Of course NPR thinks it's gouging, but when the prices are what we think of as outrageous, dozens of drivers grab their cars and race to the high-demand neighborhoods to make profits by providing rides to people who're willing to pay the extra price. Sounds like capitalism to me, doesn't it? With the extra cabs in the area, the demand is met sooner, therefor the price must fall through competition, and the cab fares return to normal far sooner than they would have. Everybody's happy.
If prices are controlled, as they are with regular cabs, then cabbies aren't motivated to brave the elements to sell people rides. When prices are allowed to adjust to demand, then cabbies from all over town move to the area and the demand gets met.
This is the same phenomenon as the price of bottled water in tornado damaged towns, for instance. When the water supply is compromised and the price of bottled water is held low, by law, then the first people into the store hoard the water for themselves because it's so cheap, leaving very little for others. If the price were allowed to rise with increased demand, people would only buy what they really needed and there'd be more left for others. Plus, with higher prices, suppliers outside the area would swoop in to take advantage of the high prices and through competition, the supply increases, therefore the demand decreases, and the price falls back to what it was originally.
This is basic supply/demand/price economics. Every 5th grader should understand this and recognize the stupidity when the government meddles with the system.