Sunday, September 04, 2005

Emergency price-gouging

People complain about price-gouging in an emergency situation, and many states have laws against it, but such gouging does often serves a useful purpose.

Suppose that a gas station in Lousiana has a few thousand gallons of gasoline, and no hope of re-supply anytime soon. The owner has already paid for that gasoline, and some would argue that he should only sell it at the price he paid plus a standard markup.

If he sells the gasoline cheaply, then it will probably be bought by hoarders, and then police and emergency vehicles may not be able to get gasoline at all. If he charges a market rate, then he will ensure that the gasoline will be available to those who really need it.

This is the usual argument that price controls cause shortages. People accept the argument because they don't like shortages. The odd thing is that they are willing to have price-control induced shortages during emergencies. It seems to me that it is during emergencies that shortages are the most troublesome.

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