Tuesday, March 17, 2020

Banning price gouging is harmful

There are many press stories complaining about price gouging, but not everyone is offended by it. Read this comment:
Banning price gouging is harmful, especially in disaster scenarios. The laws of supply and demand do not change because there's a natural disaster or a pandemic.

Firstly, it destroys incentives for conservation and encourages hoarding. When people rush out to buy hand sanitizer, of course they're going to buy more than one bottle when they cost $4 each. If stores were allow to charge $10 per bottle, people would think twice about loading up.

Secondly, it reduces supply, because sellers don't have enough incentive to supply the market. And the suppliers are both the manufacturers and the people who have some stockpiled. Right now there are thousands of empty office buildings with hand sanitizer stocked in janitorial supply closets. But that supply won't get to consumers, because it's not worth it for most businesses to unload the stuff at $4/bottle. And because online marketplaces have cracked down, there isn't a good venue to sell it.

By setting a price ceiling, the law aims to prevent price exploitation, but at the cost of actually distributing goods. To put it another way, the law is saying that instead of being able to buy hand sanitizer at $20/bottle, it's better for you to *not* be able buy it at all. The price ceiling creates the shortage, and an empty shelf is like an infinite price, from the consumer point-of-view.

No one like a profiteer, but the alternative isn't that the shelves would be full. The shelves would still be empty, and other people would have cleared them out.

Because of price gouging laws, toliet paper manufacturers are refusing to expand capacity, Ebay is banning hand sanitizer sales, and people who need essential goods cannot buy them.

You know your country has too much socialism if your local store's toilet paper shelves are empty.

For most ordinary retail stores, it is easier and more profitable to just sell out the existing inventory in case of emergency demand. Trying to manage the stock in a more responsible way is just too much trouble. But price gouging laws prevent entrepreneurs from entering the market, and making products available for those who really need them.

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