Prices
Just like we saw in my last post, in the short term, Consumer Demand is one of the strongest factors in setting prices.
While this is generally good - it incentivizes companies to produce what people want - it might create some very bad situations.
Catastrophes
In an emergy situation, many essential goods, like water, food, and medicine see a big increase in demand, either because people want to stockpile essentials or because supply lines were cut (or both!)
Price Gouging
In this situation, companies have an incentive to raise prices, that's the action that will maximize profits.
That's Price Gouging.
This is obviously bad, right?
Yes! People might have to use their life savings in order to get enough essentials to live through a storm or a power outage, for example, people might have to use part of their life's savings!
How this can be good
Just like Inequality, Price Gouging can be good, if it only happens to an extent:
Incentivize emergency production
Just like it happened for masks and other medical supplies at the begging of the pandemic, an increase in price will make it more attractive for companies to produce that product.
This means more of the needed goods will flow into the disaster area, which will lead to both more people having access to those essential goods AND an eventual decrease in price.
No hoarding
If essential goods are very expensive, then people will only buy what they really need, leaving more goods available for everyone else.
Conclusion
While Price Gouging is generally terrible, as it is only done in order to increase a company's short-term profits, it can actually do some good!
Plus, many businesses don't do this exactly because it hurts their relationship with their customers (and their long-term profits).
If you know of any more examples of Price Gouging, leave them in the comments!
Thanks for reading!
Remember to Upvote and Share, so that I can keep making many posts per week!
Take a look at my last post, about Predatory Pricing:
Posted Using LeoFinance Beta
Price gouging isn't good but the alternative is worse. Price gouging incentivizes production and more quickly solves the problem of shortages. Price controls make shortages worse by encouraging people to hoard and disincentivizimg production.
Yeah, Price Controls ARE very hard to implement! I think they still have a place in preventing cartels from just increasing prices for no reason, but when it comes to disasters there are better tools, like focusing on emergency response and making sure people are at least hot and fed.
Posted Using LeoFinance Beta
But that's just a case of the government trying to ineffectively solve a problem it creates. I would argue that cartels wouldn't exist in a significant manner unless helped by government. Relaxing IP law would probably be a better solution. Even laws preventing collusion would be better than price controls (and such laws already exist).
Yeah, now that you mention it, a more direct way to prevent collusion is preferred rather than a roundabout one.
I just can't say that fewer Intelectual Property laws would lead to fewer cartels, just to less innovation.
Posted Using LeoFinance Beta
I am all for price gouging for the very reasons you listed.
But, I am an incurable free market guy. Free means free :-)
Posted Using LeoFinance Beta
Eh, I just hope you can see it isn't perfect ;)
Posted Using LeoFinance Beta
Yep. Humans aren't perfect :-) And that is the problem ;-)
I just don't think there is a good answer. i would rather err on the side of freedom however.
Don't get me wrong. I don't like price gouging or gougers. Just think it should be discouraged through social pressures not legal. If I believe in ownership, which I do, then I believe a person has a right to charge what they will for what they own. Others have a right to not pay it.
The real question is, is there really such a thing as ownership? Or is it just an illusory construct? Round and round we go :-0
Posted Using LeoFinance Beta
Ahahah well said! And it's already being done to some degree, in places like social networks and by protests and private companies.
Posted Using LeoFinance Beta