From Natural Disasters to the Coronavirus: Why Price Gouging Laws Hurt the Most Vulnerable

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“Hurricane hits your town and the power nis out your child is diabetic need power power to keep her insulin nrefrigerated you re desperate. But but perhaps you re in i have an nelectrical generator that i m willing to sell you and you have the 800 that ngenerators like mine typically cost the only problem is i don t want to sell nit to you for. 800 i want 1300. Now as it turns out my offer would be illegal in a majority of us states about 34.

Which has statutes that prohibit price ngouging. The practice. It s usually defined as raising prices on certain nkinds of goods to an unfair or excessively high level during an nemergency so there s really no question about what the law would do to me if i nmade an offer like this to you but even if the law is clear the moral status of nprice gouging is not this price gouging always amoral and whether it is or not nshould. It be.

Illegal let s look at the question of morality first is asking n. 1300..


For the generator morally wrong of course you d rather buy it from me nfor 800. But there are three reasons. Why am. I charging a higher price isn t nobviously wrong first remember you don t have to buy it from me for 1300.

That s nmore than you think the generator is worth you re free to walk on by if you ndo decide to pay. It s because you believe you re getting more value out of nthe generator than you do from the 1300. You gave up for it in other words nyou re coming away from the deal with more than you gave up a second ask nyourself. What would happen if i did charge only a enter dollars for the ngenerator.

Remember you aren t the only person who needs electric power in this nsituation. If the price was lower..


When the generators still have been there nwhen you tried to buy it or would someone else have snatched it up before nyou ever had a chance this leads directly to the third point. Which is nthat high prices do more than just lie in sellers pockets. They also affect how nbuyers and sellers behave for buyers. High prices ndemand and encourage conservation.

They lead buyers to ask themselves whether nthey really need that generator or hotel. Room or whether they can do without. And by doing so they allow at least some of those resources to be conserved for nother people who might need them more and therefore are willing to pay more nand for sellers. High prices encourage people to bring more goods to where nthey re needed.

If generators can be bought in an area nnot affected by the hurricane for eight hundred dollars and resold later for nthirteen hundred dollars that creates a profit incentive for npeople to bring generators from where they re less needed to where they re nmore needed to get them to where they ll do more good for people who need them nmost all of this leads to a surprising. Conclusion even someone who can t afford nto..


Pay 1300. For a generator benefits from a system in which sellers are nallowed to charge that price that s because the profit motive that that nsystem creates encourages competition. Which increases supply and ultimately ndrives down prices to a more affordable level for everyone now. It s true that nwhen price gouging is legal.

Some people won t be able to afford the higher nprices that result. But ask yourself what alternative institutions would do better when price gouging is prohibited goods usually go to whoever shows up first if nyou care about distributive justice. Is that really a better system. I think nthere are good reasons to doubt that price gouging is immoral.

But suppose nyou re not convinced suppose you think price gouging is exploitative and wrong nshould. It be illegal..


The answer. Even if we assume that price gouging is immoral nis almost certainly that it should not be illegal. If price gouging is wrong nit s because it hurts people in vulnerable situations. But then the last nthing you want to do is hurt those vulnerable people even more remember the nonly reason price gouging occurs is because a disaster causes demand for ncertain goods to go up or supply to go down with the result that there isn t nenough stuff to go around anti gouging laws.

Don t do anything to add narrest this underlying shortage in fact they make it worse by destroying nincentives for conservation and increased supply so even if you think nthat price gouging is morally wrong. And that merchants should refuse to engage nin it making it illegal doesn t make ” ..

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