Some laws ban price gouging. In certain industries and during an emergency, firms basically can’t raise prices unless they can prove that their operating costs / input costs increased.FN: SRAS
Looking at the graph immediately following seem to over state the shortage or require the assumption that the set price ceiling in fact ignored the clearly demonstrated (S curve) increase in costs. If we move to the view that the administrative price is well informed then you just get market clearing. The argument there should be no gouging is occurring—that would just be the uninformed rhetoric.
I suspect the real problem with attempts at price gouging all relate to attempts to restrict supply (at least in some local, short term aspect). Early in the pandemic days when all the store shelves were empty of some items there was a story about some guy that had a garage full of some item (forget if it was disinfectant wipes, toilet papers or what—one of the high demand items). He had bought out the supplies early with the intent on selling at a high profit when supplies were even tighter. So the dynamics of price gouging and the profit motive can lead to some perverse outcomes that are not consistent with what you could call efficient or welfare positive market outcomes. Of course this is not some new behavior—used to be called front-running and was consider a violation of the terms of many of the old Merchant Guilds in European history.
Side note on prices as signals. While I’m generally very sympathetic with the prices are signals view, it’s not always obvious to infer just what is being signaled. Generally the claim is increasing prices should signal need for more supply while falling prices signal a need for less supply. However reality seems to allow for the reverse to be the case. Declining industries with fixed costs in production will likely see increasing prices as demand falls and suppliers exit—strange case of being on a negatively sloped portion of the supply curve. Similarly, increasing demand with fixed costs also allows for prices to fall as the increased output takes advantage of the economies of scale from fixed costs in production. Not looking into the details and taking the signal at “face value” would lead to a really bad investment in the first case. In the later case it might lead to missing a great investment.
If he bought the supplies earlier, then he creates a signal to the producers of those suppliers at the time of his purchase that they have to produce more. That’s good.
There’s also a good chance that the toilet paper he sold was on average more valuable to the buyers then the toilet paper was to those buyers when he brought his supplies.
f he bought the supplies earlier, then he creates a signal to the producers of those suppliers at the time of his purchase that they have to produce more. That’s good.
The market can remain irrational longer than your bum can stay free of shit.
I remember it being discussed on /r/themotte. The 101ists were staunchly defending it , but the professional economists in the discussion were much less impressed.
Looking at the graph immediately following seem to over state the shortage or require the assumption that the set price ceiling in fact ignored the clearly demonstrated (S curve) increase in costs. If we move to the view that the administrative price is well informed then you just get market clearing. The argument there should be no gouging is occurring—that would just be the uninformed rhetoric.
I suspect the real problem with attempts at price gouging all relate to attempts to restrict supply (at least in some local, short term aspect). Early in the pandemic days when all the store shelves were empty of some items there was a story about some guy that had a garage full of some item (forget if it was disinfectant wipes, toilet papers or what—one of the high demand items). He had bought out the supplies early with the intent on selling at a high profit when supplies were even tighter. So the dynamics of price gouging and the profit motive can lead to some perverse outcomes that are not consistent with what you could call efficient or welfare positive market outcomes. Of course this is not some new behavior—used to be called front-running and was consider a violation of the terms of many of the old Merchant Guilds in European history.
Side note on prices as signals. While I’m generally very sympathetic with the prices are signals view, it’s not always obvious to infer just what is being signaled. Generally the claim is increasing prices should signal need for more supply while falling prices signal a need for less supply. However reality seems to allow for the reverse to be the case. Declining industries with fixed costs in production will likely see increasing prices as demand falls and suppliers exit—strange case of being on a negatively sloped portion of the supply curve. Similarly, increasing demand with fixed costs also allows for prices to fall as the increased output takes advantage of the economies of scale from fixed costs in production. Not looking into the details and taking the signal at “face value” would lead to a really bad investment in the first case. In the later case it might lead to missing a great investment.
If he bought the supplies earlier, then he creates a signal to the producers of those suppliers at the time of his purchase that they have to produce more. That’s good.
There’s also a good chance that the toilet paper he sold was on average more valuable to the buyers then the toilet paper was to those buyers when he brought his supplies.
I think stories like those during the Texan blackout (https://www.cbsnews.com/news/texas-power-outage-griddy-lawsuit-electricity-bills-2021-03-26/) are a better example for problems that might be prevented by some price regulation.
The market can remain irrational longer than your bum can stay free of shit.
I will just note that you are making a quantity argument here, not a price argument.
It was two guys and hand sanitizer.
https://www.today.com/news/brothers-who-hoarded-17-700-bottles-hand-sanitizer-forced-donate-t176028
I remember it being discussed on /r/themotte. The 101ists were staunchly defending it , but the professional economists in the discussion were much less impressed.