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I say yes.. and I say that I haven't studied Economics (ECO-101 in college doesn't count)..
Let me give some examples and.. Others can weigh in if they choose.
Shortly after Katrina in 2005, a gas station in Clinton, SC was charging $5.99/gal for gas.
Other stations were charging $3.29/gal on average. Does this raise to the level of gouging? Probably not. Stupid? Yep.. Gouging, no. After all, the station across the street was charging $3.29.. The station selling it for $5.99 was a ghost town. That's not gouging, that's probably best called losing business.
Another example.. During a snow event here over the winter.. A towing company was charging $1000 to tow a car. Normal average price for a tow is $250. That raises to the level of taking advantage of people. 4 times the cost? I can understand doubling the price.. But 4 times?
Now.. Is that gouging? According to the law in SC, yes, it was. Therefore, price gouging exists. The law in SC states that price gouging is defined as charging an 'unconscionable price', which is defined as..
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An "unconscionable price" is a price that (i) represents a gross disparity between the price charged and the price of the same or similar goods during the 30 days prior to the declared emergency.
So. Based on the definition in the code of laws for SC.. Price Gouging certainly can exist.
Whether that equals out to or is comparable to the economists definition of it is another story.
I think it's very hard for there to be gouging on a product.. Much easier for there to be gouging on a service.
So. Based on the definition in the code of laws for SC.. Price Gouging certainly can exist.
Whether that equals out to or is comparable to the economists definition of it is another story.
I think it's very hard for there to be gouging on a product.. Much easier for there to be gouging on a service.
What South Carolina (and other states) have done is say, "It's OK if prices rise as a result of changing market conditions" (prices increase on thing every day, and there are no charges of "gouging). "But if the market conditions change as a result of a natural disaster, then the price increase is illegal."
What South Carolina (and other states) have done is say, "It's OK if prices rise as a result of changing market conditions" (prices increase on thing every day, and there are no charges of "gouging). "But if the market conditions change as a result of a natural disaster, then the price increase is illegal."
Doesn't that seem more than a little odd?
Seems that the 'disaster' part shouldn't be in there.
It's, to me, a tip-toe dance between pricing that the market will bear and random, arbitrary raising of prices.
Let's use this example.. County has a 'tow-ring'.. Basically, a bunch of tow-truck companies that rotate being called in accidents, etc to clear the road.
You have an accident, and the company the county calls charges $2000 to tow your vehicle. The other 6 companies in the 'ring' charge between $200 and $250.
What is that? Other than a company that the county shouldn't be doing business with. Is that gouging? Under SC law, unless it happened during a state of emergency, it wouldn't be. It certainly would fall in the 'unconscionable pricing' area.
If 5 gas stations working together artificially raise their gas prices to $5.99/gal.. that's not gouging.. That's collusion.. And there's laws against that, as well.
I don't disagree that the law, as written, is dumb.. As written the law is "Go ahead and screw 'em over, so long as it's not during an emergency"
I think we are often more conscious of price gouging caused by collusion and disaster than say gas prices rising because of refinery being down for renovation and the change over of summer gas to winter gas. Most of the time consumers see a slight increase in price but don't think twice in paying for it and this happens often. Crisis pricing of raising gas prices to nearly double however you notice more than your gas prices going up by $.05 in a regular given week. Not saying we can't see gouging during non-crisis but there are more common occurrences and noticeable in that case.
In your last sentence, are you saying that a natural disaster ISN'T a market condition, and that prices either shouldn't or can't increase as a result?
Yes. I am saying a natural disaster isn't a normal market condition. A man-made disaster is not a normal market condition either.
Again, it seems like you simply fail to grasp the idea of price gouging.
In New Jersey, where I work, in the aftermath of Hurricane Sandy the power was out all over the place. Many people needed gasoline for their home generators. Without laws against price gouging, the gas stations that had power and product to sell could have jacked up their prices to double or triple the normal rate. Can you guess what would have happened if they had done that? That's right, the public outcry would have been so great that the legislature would have been forced to pass price gouging laws. TaxPhd, your homework assignment is to write a 5 page paper on how you, as governor of New Jersey, would defend your veto of the law passed as a result of this situation.
The thing people have to understand also is that businesses aren't charities. No matter what your ego tells you, you are not entitled to cheap gas. The main objective of a business to make a profit. Normally a business owner makes a profit by selling goods and services to a large volume of customers at an affordable price, however when he doesn't have enough products on the shelves to meet customer demand he needs to raise the price to preserve what little inventory he has, because after all...what good is a gas station if it's out of gas. That's the fundamental flaw with government price controls...supply diminishes much more quickly than it would have been in a free market. Governments do things because it simply sounds good to voters who don't know any better...markets do things because it makes sense and will benefit society in the long run even if they are too ignorant to see it.
The thing people have to understand also is that businesses aren't charities. No matter what your ego tells you, you are not entitled to cheap gas. The main objective of a business to make a profit. Normally a business owner makes a profit by selling goods and services to a large volume of customers at an affordable price, however when he doesn't have enough products on the shelves to meet customer demand he needs to raise the price to preserve what little inventory he has, because after all...what good is a gas station if it's out of gas. That's the fundamental flaw with government price controls...supply diminishes much more quickly than it would have been in a free market. Governments do things because it simply sounds good to voters who don't know any better...markets do things because it makes sense and will benefit society in the long run even if they are too ignorant to see it.
The unknowable wisdom of the perfectly efficient markets! There are no information asymmetries, no poor decisions. Firms have no market power. Again, I say to you, all praise the Invisible Hand. His is the wisdom, the power, and the glory. In his ghostly name we pray, A-men!
Yes. I am saying a natural disaster isn't a normal market condition. A man-made disaster is not a normal market condition either.
Whether it is normal or not can be debated, but the fact remains, it IS a changing market condition that legitimately results in increasing prices. The "price gouging exists" crowd seems hell bent on denying that reality, and is perfectly willing to use legislation to prevent the natural workings of the market.
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Again, it seems like you simply fail to grasp the idea of price gouging.
I grasp the idea of what most people believe price gouging to be. At its core is the belief that the new market price is somehow unfair, as it is higher than what they feel it should be. And as a result, sellers should sell goods and services at a price that the mob deems appropriate, rather than at the market determined price.
The poll shows even the majority of people having studied economics admits that it exists. I'd bet there is a correlation with stating that it doesn't exist and not having a clue how to do it. I can assure you it exists. One form of price gouging is what is known as "economic rent".
After an emergency, you can jack up prices dramatically. Does that reflect the new supply and demand? Yes, it does. Is it price gouging? Not by itself. So when does that turn into price gouging? When the entity selling it has a monopoly in that regard and restricts new flows of the material to increase profits. Keep in mind that the only way we stomp out price gouging is perfect competition. Monopoly and Oligopoly are perfectly happy to allow price gouging. Too often mediocre econ students believe everything is perfect competition, but in the U.S. it is extremely rare to see perfect competition. Ever watch Shark Tank? Notice how the rich investors want companies that have patents? They have virtually no interest in any company producing a product that is not legally protected from competition. That is because they know if there is free competition they can not earn the rate of return that they want on their capital. They are explicitly looking for products which the government has determined will not be required to compete in a free market environment.
Where is price gouging happening right now? Diamonds. One company owns 80 to 90 percent of the world's supply of diamonds. They keep mining them and stashing them in bank vaults to ensure other companies can not get access to them and undercut the market. Meanwhile, they allow only a very small fraction of what they mine to go to market because their profits are substantially better by creating an artificial shortage and selling less than by selling their entire supply at the "market clearing price". If no company owned more than 1% of the market, this kind of behavior would be virtually impossible because collusion becomes exponentially more difficult as the number of competitors increases.
For everyone who disagrees, sit down, read it again, I just gave you a better education than your sorry excuse for a professor.
Whether it is normal or not can be debated, but the fact remains, it IS a changing market condition that legitimately results in increasing prices. The "price gouging exists" crowd seems hell bent on denying that reality, and is perfectly willing to use legislation to prevent the natural workings of the market.
Random price spikes are not desirable in American capitalism. If you don't like it, that's too bad. You are way outnumbered.
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I grasp the idea of what most people believe price gouging to be. At its core is the belief that the new market price is somehow unfair, as it is higher than what they feel it should be.
Correct. There is a moral component to being against price gouging.
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And as a result, sellers should sell goods and services at a price that the mob deems appropriate, rather than at the market determined price.
Incorrect. The "mob" will loot your store no matter what your prices are. Anti-price gouging laws are in place before the emergency and were passed the same way other laws are passed.
Can I ask what course you are taking right now, and what your professor says about price gouging?
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