Price gouging and subjective value.

in price •  6 months ago

Getting supplies to disaster zones is not merely an allocative problem. If it were, there'd be no need for prices, and "price gouging" would not exist. Any monkey with a halfway decent knowledge of calculus could do this.

The trick is getting the supplies to where they are valued most. Value is a subjective term, not objective (not everyone values a bottle of water by the same amount at every time period for all eternity). Value is information transmitted by the price system and is necessary for the above allocation problem to be tackled. Therefore, by blocking the price signal through anti-price-gouging legislation, you necessarily block the very mechanism necessary to get supplies to disaster areas and to who they are most needed!

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Price gouging is a very narrow minded short term strategy. Disasters do not last forever. People will remember exploitative behaviour.

A better long-term strategy is help out at the lower prices and even make a loss in order to build a reputation for philanthropy.

Price gouging probably only makes sense for existing monopolies where people do not get a choice later on to switch to other businesses. This is where anti-price-gouging legislation could have a role. This mostly doesn't make sense either as most monopolies are created by Government. Therefore, they would be regulating themselves.