Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Implicit in the "price gouging does exist" argument is a belief that price gougers are able to charge, and get, more than the market determined price for a product. This is an impossibility.
In the wake of a hurricane, when gas is selling for $7/gallon, why aren't the "price gougers" selling their gas for $20/gallon?
The point is that markets fail to efficiently distribute goods during crises because the information-sharing necessary for a functioning market does not occur, because consumers are especially unlikely to behave rationally during such an emergency, and because the market may more closely resemble a monopoly market where normal competition has ceased (for various reasons that might destroy comparison-shopping in an emergency).
In response to "what is a windfall?" It's simple. When one's rate of return exceeds the real rate of return (taking into account the NPV of debts accrued for the purpose of bringing a product to market, historical risk-adjustments for a particular industry, etc...) gained by the market as a whole. Economic rent (whether from land or other rent-seeking) is the larger scale version of this.
I clicked I studied economics and believe it exists mainly due to the fact I have taken micro and macroeconomics and it does especially with monopolistic tactics and even cartels.
If a cartel can price gouge, why is crude oil at $105 instead of $505, or some other "price gouger" price?
The point is that markets fail to efficiently distribute goods during crises because the information-sharing necessary for a functioning market does not occur, because consumers are especially unlikely to behave rationally during such an emergency, and because the market may more closely resemble a monopoly market where normal competition has ceased (for various reasons that might destroy comparison-shopping in an emergency).
In response to "what is a windfall?" It's simple. When one's rate of return exceeds the real rate of return (taking into account the NPV of debts accrued for the purpose of bringing a product to market, historical risk-adjustments for a particular industry, etc...) gained by the market as a whole. Economic rent (whether from land or other rent-seeking) is the larger scale version of this.
Care to take a shot at the question?
Quote:
In the wake of a hurricane, when gas is selling for $7/gallon, why aren't the "price gougers" selling their gas for $20/gallon?
If a cartel can price gouge, why is crude oil at $105 instead of $505, or some other "price gouger" price?
That's an easy one - if OPEC was able to get the price up that high, which would crush our economy, a number of countries would be getting a friendly visit by a few carrier groups to take care of that problem...lol. In other words, they know very well that we'd take their oil by force if they insisted on charging more than we could afford for it.
If a cartel can price gouge, why is crude oil at $105 instead of $505, or some other "price gouger" price?
Prisoner's dilemma. But while there has been cheating, the Cartels were not entirely INeffective either. Prices really were held higher than if the cartels didn't exist.
And even if the cartel was perfect (the oil cartel melded into one supernation ruled by a single dictator), if you price too many people out of the market it eventually becomes counterproductive. Unless the good has inelastic demand. Even textbook monopolies don't have unlimited power.
EDIT: The answer is similar for your other question (why $7 and not $20). An ineffective market doesn't mean a perfectly inefficient or perfectly monopolistic or a perfectly imperfect "NO INFORMATION" market.
Cripes, it's not as if I was evading the question at all, it's just that nothing in economics is a slippery slope, and all of your questions are slippery slope fallacies.
Last edited by kwhitegocubs; 04-20-2014 at 05:14 PM..
Reason: Adding On.
That's an easy one - if OPEC was able to get the price up that high, which would crush our economy, a number of countries would be getting a friendly visit by a few carrier groups to take care of that problem...lol. In other words, they know very well that we'd take their oil by force if they insisted on charging more than we could afford for it.
OK. Pick a price point higher than the current price, but below the "Man your battle-stations" level. Why doesn't the cartel charge that amount?
Those on this thread who assert that price gouging does not exist are relying on a tautological argument:
- Perfect markets cannot price gouge otherwise they would not be perfect
- Capitalism relies on a perfect market
- We live in a capitalist economy
- Therefore price gouging does not exist.
Those on this thread who assert that price gouging does indeed exist are also relying on a tautological argument:
- If prices are higher than I feel is fair, it is price gouging
- Prices are sometimes higher than I think are fair
- Therefore price gouging does exist.
I predict this argument is not going to be settled unless (and even then maybe not) both sides agree what is meant by "price gouging".
OK. Pick a price point higher than the current price, but below the "Man your battle-stations" level. Why doesn't the cartel charge that amount?
I guess because they know the higher it goes, the more we'll produce our own oil (even at great cost).
Besides, as I define price gouging, it has to be a sudden and dramatic increase for it be considered as such - gradual increases of a few percent a year is just inflation, which we can adapt to by producing more of our own oil and using less of it. So that's probably why it's creeping up a few percentage points a year instead of going up a $100 a barrel in a single go. As for the price explosion in '08, that was crazy speculators getting out of hand, that sort of thing needs to be regulated too, IMO.
Those on this thread who assert that price gouging does not exist are relying on a tautological argument:
- Perfect markets cannot price gouge otherwise they would not be perfect
- Capitalism relies on a perfect market
- We live in a capitalist economy
- Therefore price gouging does not exist.
Those on this thread who assert that price gouging does indeed exist are also relying on a tautological argument:
- If prices are higher than I feel is fair, it is price gouging
- Prices are sometimes higher than I think are fair
- Therefore price gouging does exist.
I predict this argument is not going to be settled unless (and even then maybe not) both sides agree what is meant by "price gouging".
Look, I assume I am being included in this, but I never appealed to "my feelings" of fairness but to efficient allocation of necessary resources. If they are necessities (food, gas for generators and/or travel, blankets, candles, batteries, etc...), then a poor allocation of resources can lead to what happened in Katrina. Not saying that was due to price gouging, but in emergency/crisis scenarios there are real and dire consequences to not regulating a market.
Second, I did define price gouging as being able to charge prices above the general market rate of return (all risks factored in) by exploiting the peculiar inefficiencies of a market during a time of crisis. I compared this to the concept of economic rents when asked to define what a "windfall" is... which is the same thing as the surplus captured by price gouging.
You are right that the definitions are in question, and without agreement on definitions (perhaps impossible), there will be no agreement on solutions. But by labeling both sides with a broad and inaccurate brush you are doing a disservice.
Last edited by kwhitegocubs; 04-20-2014 at 05:31 PM..
Reason: Clarification
If a cartel can price gouge, why is crude oil at $105 instead of $505, or some other "price gouger" price?
Because you gouge prices to a point they are high but not too unbearable partially because theycould face economic sanctions or even war in the worst case and trigger happy scenario. Also as others mentioned you can't price themselves out of the market or else the market collapses. This is why I say that companies running on skeleton crews paying peanuts would eventually crush the economy, because the more people playing in the economy, the larger the demand and thus increasing prices and/or supply and jobs come from an increased supply to meet said demand.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
