Peter and I usually see things from a similar viewpoint, and I generally respect and listen to his opinions. Not this time. He is saying that:

Businesses aren’t pricing their goods according to what they pay for them, plus a fair and reasonable profit.  Instead, they’re pricing them as high as they think they can get for the product. 

Then goes on to call this “price gouging. This is where I disagree with Peter.

Pricing things according to what people will pay is what everyone does. Let me explain. Let’s say that paying your bills costs you $40,000 per year. Adding on 10% for retirement savings, and 10% for discretionary spending would make your total $48,000 per year.

Now let’s say that your employer offers to pay you $60,000 per year. Do you say, “No thanks, boss. I only need $48,000, so me taking more would be unfair and unreasonable.”

Of course you don’t. So why would you expect a business to act any differently?

Prices are set by supply and demand. If customers are willing to pay $7 for an apple, then businesses will sell apples for $7. That’s what Whole Foods is selling apples for in Peter’s example.

Now let’s say that another business, call them Winn Dixie, is selling apples for $1. Now consumers have a choice: they can go get the $1 apples at Winn Dixie, or they can go get them from Whole Foods.

So why don’t consumers go to Winn Dixie, rather than Whole Foods? There are a number of reasons, which can include what the consumer perceives as the quality of the apples at Whole Foods, or perhaps the shopping experience (maybe one store is cleaner), or other issues like organic foods, the store supports causes or social issues that the consumer also supports, or any number of reasons not directly related to the costs of the apple itself. In other words, Whole Foods isn’t just selling apples. They are selling a shopping experience that some consumers are willing to pay more for.

That’s a choice we each get to make every time we purchase something. That isn’t gouging, it’s the market at work. Even when something IS considered price gouging, I maintain that it isn’t unfair. Let’s say that a hurricane hits my area. The law says that charging more than normal for products like gasoline is price gouging, and that is illegal.

Let’s say that before the hurricane, I was selling fuel for $4 a gallon, but buying it for $3 a gallon. So what happens when the hurricane hits, and everyone wants fuel? I could continue to sell fuel until I run out, then wait for more fuel to come in from my regular supplier, in which case no one gets fuel from that point forward.

Or, I can pay someone to haul more fuel in, even though it takes longer, and I may have to outbid someone else to get that supply from a different supplier. So now I can buy fuel at a higher price, pay more to have it hauled in on a chartered truck, and my cost to have the fuel delivered is now $7 per gallon. The only problem is that the law says that it is price gouging for me to sell that fuel for more than the $4 I was charging before the storm. So I stay home and don’t sell any fuel. Now there is none available at any price.

How did that help anyone, except the 10 guys who came to my establishment before the storm and bought up all of my fuel in anticipation of a shortage?

So how does the market respond? The black market comes in and makes a new, underground market. Now those ten guys are selling fuel for $20 a gallon because they are the only ones with any gasoline to be had.

This is why price controls cannot, and will not ever, work. It’s called the LAW of supply and demand for a reason.

Categories: Price Controls


Brother John · April 22, 2024 at 3:04 pm

Exactly. Just as “gender” is a term of grammar and not biology, “price gouging” is a term of demagoguery and not economics.

jimmyPx · April 22, 2024 at 5:27 pm

I really believe that everyone should have to take a basic Economics 101 course in High School.
This is common sense but dummies who don’t understand basic supply and demand come up with these crazy ideas that have horrible consequences.

A good example is in California raising the minimum wage to $20/hour.
The Lefties say “good, those rich greedy business owners SHOULD be forced to pay their workers a liveable wage”. It’s the same as Biden wants business taxes to skyrocket because they are “not paying their fair share”.

What they do not get is businesses have NO money. The only money they get is by producing and selling a good or service that their customers are willing to buy. Any increase in their costs like forced employee raises or increased taxes won’t be paid by THEM rather it will be paid for by their customers with the goods or services prices being increased.

But as California fast food restaurant owners are complaining there is a limit to how much they can increase prices before their sales drop off a cliff and they go bankrupt. Few people will pay $20 for a Big Mac and if you look at the fast food chains sales, they have been dropping big time.
I see it because my local Mcdonalds is right off the interstate and at lunch time they always for years had cars stretched around the building waiting on the drive thru. Now, 4 or 5 cars in line tops. The owner of the Mcdonalds had to lay some employees off and cut back hours because business is so bad and my town is a university town where there have been no layoffs, inflation is causing this.

Will · April 22, 2024 at 5:45 pm

Let me give you an example. I shop at Publix ever week even though Walmart is much cheaper. I do take advantage of the bogos at Publix. I do that because if I was forced to do all my grocery shopping at Walmart, my mood would totally go south. I would probably be arrested for shooting some Walmartian.

B · April 22, 2024 at 6:00 pm

It is called capitalism. If you prepare and buy the gasoline BEFORE the hurricane, and have a generator to power the pumps, are you not entitled to some additional profit for your foresight?

Another example. If I raise the price of my hotel rooms when the demand goes up, am I “gouging”. Is anyone gonna support my price when the demand drops during slow times?

Capitalism is what we get when people are willing to work hard and make a profit. Others are welcome to also enter the business and sell their goods….cheaper if they wish.

“Gouging” is what people who fail to prepare call the market.
Peter is a great guy (I’ve met him), but he thinks that somehow everything should be “fair”…..

Live Or Memorex · April 22, 2024 at 6:05 pm

Isn’t it what the market will bear?
Aren’t they obligated to turn a profit by any means necessary no matter how stupid or traitorous the current regime is?
Or how hard the dollar is shrinking.

Bobo · April 22, 2024 at 7:09 pm

The best cure for high prices is high prices. Assuming the FED doesn’t push more money out the door, high prices attract more supply. More supply, anticipating high prices makes competitors lower prices to maintain or gain market share.

Beans · April 22, 2024 at 7:40 pm

And… it also depends on where you are. Is a hotel price gouging for an apple or a bag of chips and a soda all priced at $10 from the mini-bar or the gedunk store down in the lobby? Or a Bodega in NY(F)C where a banana costs $1.50 a piece while in Free Florida a banana costs $.59 a pound?

So why not sue soda machines for charging a third of the price of a 6 pack for a soda. Or sue the stores that have a half liter bottle of soda on sale for $2.00 at a refrigerator right at the checkout line while 2 liter bottles are on sale, 4 for the price of 2, where the normal price is 2 for $8.00.

Convenience and exclusivity. I could blow my wallet at Whole Foods, Trader Joes, the ‘Organic’ food store that smells like rotting produce and people who haven’t washed since they became ‘organic.’

But I shop at Publix mostly, at Sams once a month (10lb bag of big sized spuds for less than $8.00? Count me in.) And at Walmart when I can get up the energy to do so (their canned produce, beans and tomatoes mostly, and their canned tuna are significantly cheaper than anywhere else and the quality is as good and in the case of tuna, mostly tuna and not a lot of water.)

    Don W Curton · April 23, 2024 at 7:47 am

    If the hotel owner raises the price of a room, that’s gouging. But what do we call it when the local city govt adds a $30 tax to each room’s rent as a luxury tax on tourists?

    And yes, convenience has a cost, and we as consumers have to decide how much that convenience is actually worth.

      Divemedic · April 23, 2024 at 8:19 am

      1 I don’t think that raising a hotel room price is gouging, any more than you asking for a raise is.
      2 The tourists place a strain on local governments. There are examples of towns all over the US with small populations, say 50,000 residents, that cope with a million tourists a year. Those tourists require police, fire, EMS, and other government services. Those services have to be paid for. I don’t have a problem with that either.

Rick T · April 22, 2024 at 8:50 pm

Plus, the store needs to make enough money to pay for the NEXT shipment of apples, same with gas stations. The price goes up for fuel already delivered because they have to pay for the next one with the profits from the last.

oldvet50 · April 23, 2024 at 7:36 am

I agree that there really is no such thing as price gouging, unless it is with a product or service that is otherwise unavailable. I do not mean unavailable due to some event (like hurricanes) but for forced sales that are mandated by government where no alternative is available. Car insurance is a prime example. Laws against price gouging will ensure that NO ONE will be able to get what they want at any price.

SiG · April 23, 2024 at 7:53 am

Supply and demand is one of only a few “laws” that are as inviolable as the laws of physics. It’s pretty much what got me to respect economics as a field of study and guys like Mises. As practiced nowadays, like the Modern Monetary Theory the Bidenistas follow, it’s as screwed up as “gender studies.”

Sailorcurt · April 24, 2024 at 9:13 am

Peter needs to read some Thomas Sowell.

High profits encourage competition. Other people/companies see that there is profit to be made in manufacturing/producing/providing whatever product or service is generating high profits, which both increases the supply-lowering prices, and creates competition-lowering prices.

Trying to artificially reduce prices by arbitrarily reducing profit potential only discourages production and competition, which results in increased prices due to reduced supply and ultimately outright shortages.

That’s how you end up with bread lines in a country that has vast areas of farmland suitable for growing wheat.

Aesop · April 24, 2024 at 12:32 pm

Gouging is still gouging.

Gainsaying doesn’t disprove it.
Apples to oranges doesn’t disprove it.

Jacking the price of (e.g.) bottled water and gasoline you, as – and only as – a normal retail merchant, bought before a disaster at normal prices, and trying to get 200% more the day after, is still gouging.
That’s exactly what that means.

You run out of those on-hand supplies, and subsequently have to pay more to get more, and pass that additional cost on, with the same profit margin?
That’s actual “supply and demand”.
Let’s not pretend one thing is ever the other.

We’re not talking about selling your non-retail years-old secret stash stockpile that previously you wouldn’t have parted with under any circumstances.
We’re talking about normal retailers taking advantage of temporary circumstances to line their pockets at everyone’s expense.

The other iron law is that businesses that do that seem to catch on fire and get looted with some frequency. Boo frickin’ hoo.

Pleading that if you don’t become a crook and stick up your regular customers, the black marketeers will corner the business, is a poor excuse for the practice. And one that nobody during or after an emergency situation is buying, based on firsthand observations.

If you, as a non-retailer, decide to become a black marketeer (you’re not a licensed retailer, right?) of goods you possess, in or immediately after an emergency, at whatever price the black market will bear, that’s your decision.

You may indeed be meeting someone else’s need, but that’s the same argument made by drug dealers and pimps, i’n’it?

Anti-gouging laws don’t artificially lower prices, they only prevent existing merchants from artificially raising them, usually (when correctly written) for only a fixed time span during and after a bona fide emergency (hurricane, flood, etc.).

Laissez-faire capitalism is “Devil take the hindmost”, and hasn’t been practiced anywhere but Bartertown under Auntie Entity, or the Turd World (which is functionally the same thing), since the late 1800s.

But if retailers, who need the roads, get assessed a special fee for keeping them open after an emergency, exactly equal to their windfall profits for gouging, fair is fair, and we can talk about making that the norm, with the added understanding that now the government’s just piling onto the highway robbery of everyone, aren’t they?

So now whose ox is being gored?

And if it’s not okay for government to do something to you without a kiss and some lube, why should it be okay for a private business to do the same thing?

When government tries to enact long-term wage and price controls and jigger the market, they fall on their face (Google U.S. government policy in the 1970s). But let’s not pretend temporary constraints in the immediate aftermath of a local or regional emergency that prevent businesses from cheerfully ass-raping consumers to get a windfall are the same thing.

    Divemedic · April 25, 2024 at 12:55 am

    So when the hospitals were offering $1500 bonuses for nurses to pick up extra shifts from 2020 to 2022, you were turning that money down? I know I didn’t.

      Aesop · April 25, 2024 at 1:40 am

      Never happened like that out here (at least not to anything near $1500/shift), so first of all, it doesn’t apply to me.

      And someone offering more isn’t nurses demanding bonuses for their basic shifts.
      The latter would be the equivalent of price gouging; your example isn’t. So let’s be serious: I think you knew that difference when you posted it, or at least can recognize it now.

      Call me when customers in a disaster demand to pay merchants 300% over the posted asking price for merchandise items “Take my money!!!” – (which would happen IRL only when Hell froze over, or nukes started popping over D.C., Omaha, and the Dakota/Montana/Wyoming/Nebraska missile silos), and that would be the equivalent of your example of hospitals offering more than the going rate for labor.
      That’s part of what I meant by apples and oranges.

      Hospitals routinely offer bonuses for extra shifts even without any emergency being in progress, and there’s no agreement in place anywhere that extra shifts beyond normal weekly job requirements will continue to be worked at straight time. In fact, doing that or anything like it would violate federal labor laws on overtime going back nearly a century. I’m pretty sure you know that too, but if you tell me it’s news to you I’ll spot you a mulligan.

      Gouging is a simple concept, and it’s simply wrong, but your example of offering more money for bonus shifts isn’t it in any way.

      If nurses demanded on-the-spot 300% raises during an emergency for their normal shifts that would be gouging. And if they did that, they’d be fired for cause, on the spot, and probably blacklisted going forward too. There’s a strong likelihood their state nursing board would receive reports that they had abandoned their patients and their positions in a crisis over sheer greed, and their licensure would very likely be at risk. It’s funny how hospitals and state nursing boards view price gouging in a crisis about the same way store customers do. Or maybe not so surprising at all. People know when they’re being cheated.

      By contrast, hospitals asking for extra work, and offering to pay extra money for it is simply a freely entered (or refused) supplemental contract.

      Telling someone the water bottle you bought for $1 and sold for $2 until five minutes ago is now $20 because of a crisis is simply highway robbery without a weapon, and recognized as exactly such in many jurisdictions.
      The only people who kick and fuss about that are generally the ones not allowed to do it.

        Gorth · April 25, 2024 at 8:04 pm

        No one forces you to buy the items that have had their prices raised. You COULD have gotten some water and stashed it before the hurricane, or gasoline before the blizzard….or a generator before you really needed it.
        If you chose not to, and some retailer stocked up and doubled his prices, that’s his business. He isn’t forced to sell it at YOUR price, but rather at HIS.
        If you can’t see far enough ahead to stock up, that’s on you. If he is smart enough to profit off of your inability to prepare, well, that’s on you too.

        “If god didn’t wan them to be fleeced, he wouldn’t have made ’em sheep”.

        Any other viewpoint is soft (or not so soft) socialism.
        I expected better of you, my man.

          Aesop · April 26, 2024 at 3:40 am

          Let’s unpack some of your assumptions:
          And what of those who did exactly that, and nonetheless the disaster carried their provisions away? God or random chance f**ked them despite their foresight, so they deserve to suffer anyways?

          If you think unbridled capitalism ought to be the prevailing law of the land, under all circumstances, you may move to the Turd World, and enjoy it with all our blessings.

          Were the items in question luxuries, no one would quibble. It isn’t Ferraris and mansions whose prices people bitch about getting jacked in an emergency.

          When they are staples and subsistence items, and common sense would dictate restraint, some retailers have proven to be right bastards.

          You have anti-gouging laws in the first place because people who should have known know better effed it up for everyone.

          Boo frickin’ hoo.

          File under: getting the government you deserve.

          Call back when you blaze trails across the wilderness, instead of driving on taxpayer-funded streets and highways, before you start swinging “soft socialism” complaints around. A sermon about specks and boards comes to mind.

          Of course, if you were in a lifeboat, and the cruise line decided that water and food in the boats – the line’s property, after all – would only be sold for cash at recockulous prices to survivors, doubtless you’d argue for their absolute right to starve the deadbeat passengers – like yourself – who hadn’t brought their own supplies.

          When you conflate emergency situations with everyday rules, you get such convoluted “logic”.
          Neither capitalism nor constitutional government were intended to be suicide pacts.

          We’re not talking about letting unwashed hordes rampage about the countryside and rummage through Average Joe’s basement stash. We’re talking about retailers not acting dishonestly by bending people over a barrel and pulling their pants down for them in times of exceptional distress, and calling it “just business”.

          Personally, I think gouging laws are wrong, by half. They’re too soft.
          Statutory carte blanche for horsewhippings, hot-tar-and-feathering, and lynchings would be a better service of public justice, and provide a far sterner example of public rectitude in time of duress. But I’m sentimental like that.

          I still wouldn’t loot their goods, though. I’d want them to receive fair value for all their goods, while they had any left to sell. They’d need that money so they could move away after things settled down, before they got burned out of their homes by their neighbors without a sense of humor.

            Divemedic · April 26, 2024 at 8:15 am

            And what of those who did exactly that, and nonetheless the disaster carried their provisions away? God or random chance f**ked them despite their foresight, so they deserve to suffer anyways?

            No, but those goods are the seller’s property. You are using one hypothetical to justify the taking of someone’s property rights. If you can do that for something like a natural disaster, you can use nearly anything to justify price controls. Working in emergency medicine, I hear the same thing with regards to accidents or terminal illness: health care providers should provide their services for free in an emergency. Why not also require landlords, grocery stores, auto mechanics, and the like to do the same? It’s an emergency because someone NEEDS it.

            If you think unbridled capitalism ought to be the prevailing law of the land, under all circumstances, you may move to the Turd World, and enjoy it with all our blessings.

            So telling someone that they must sell a product or service, and at what price, is unbridled capitalism and is a product of the Third World? Your position is one short step from price controls, to “needed items should be free in an emergency” to “the government is taking things from hoarders and distributing them to the community in this time of need.”

            Were the items in question luxuries, no one would quibble. It isn’t Ferraris and mansions whose prices people bitch about getting jacked in an emergency. When they are staples and subsistence items, and common sense would dictate restraint, some retailers have proven to be right bastards.

            So only “luxuries” should be from from price controls, because people need things, they want them, and you have them.
            Dude, you have been living in California too long. You are seriously sounding like you are about to go out and confiscate you some Reardon metal at this point.

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