We’re back on a weekly schedule at EconTalk. This week is Mike Munger talking about price gouging—his personal experience of the aftermath of a North Carolina hurricane and how people reacted to market prices for ice when the electricity went out. We get into a variety of issues—including the market for vaccines and the motives behind those who charge market-clearing prices. The conversation may be of particular interest to students taking microeconomics or teachers teaching microeconomics. But normal people should find it interesting as well. The conversation is based on his essay for Econlib on the same experience.
Munger on gouging
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"Normal people"?
Nice.
Dr. Williams recounts a similar situation in Virginia: http://www.gmu.edu/departments/economics/wew/articles/04/gouging.html
I have a theory that might explain why they clapped, though it requires an understanding of evolutionary psychology to be appreciated properly.
In short, the evolution of reciprocal altruism furnished us with instincts for informal social insurance. I would have predicted the clapping.
Thanks to David Warsh at EconomicPrincipals I've been enjoying your archive of conversations. Nothing dismal about you.
These considerations crossed my mind while listening to the Price Gouging stories:
Perhaps the Goldsburgers were shut down because they didn't have a permit? A local store owner might have called in the police. (That begs the question of whether government is prepared to facilitate permits for emergency vendors.)
Does the person joining the queue know the asking sale price? What if the needy individuals were enterprising enough to announce their offered purchase price? After all, isn't that what the Burger King store did in the aftermath of Katrina? The ease of communication has an impact on the choice(s) of possible or even optimal solutions.
I was outraged that the Home Depot owner didn't get his suppliers arrested and prosecuted; after all, he paid 50% more than the typical cost. (Was that the vendors' asking price or his offer price?) Where would the chain of depravity end?
In addition to communication, a crucial element in all of this is mobility. One of your posters raised the matter of the rich taking the initiative (and spending "lots") to get out and bring in material they need, thereby raising the actual cost incurred [by anyone] in the locale. One starts to ponder the holistic fairness. I wonder whether I should move to the Darfour. That'll be my contribution to remedy inequities.
But assume that there is no crisis. My fragile grandmother, who is not poor and who doesn't buy anything on sale, goes to a store and is told that the widget she wants to buy will cost her 10 times the usual price. Yet the person ahead of her at the check-out register is charged the usual price. My grandmother's immobility gives the store owner monopoly power. The "market's" corrective behavior — to bring in other providers who will offer the widget to my grandmother for less — is not going to happen in her lifetime (I bet). Does my grandmother deserve protection from such pocketbook gouging?
I suppose this scenario would fit into the "excessive price under the circumstances" intent of the price gouging legislators.