Is Price-Gouging Moral?

They clapped: Can Price gouging Laws Prohibit Scarcity?

2007

Michael Munger

This paper gives anecdotal evidence succeeded by reasoning that free markets should not be intervened with by the state. This is done through looking at the service that sellers in these instances provide and the way free markets works. This is specifically tackled in relation to “Price gouging”, is when the cost of certain products is dramatically inflated, especially when demand is high, and supplies are limited.

The situation is described to be a hurricane striking America in 1996, leading to power cuts and huge demand for ice, water, electricity generators. In response to this, certain individuals not affected by this disaster realised the consequent high prices for goods and came from nearby areas to sell ice to victims of this disaster. They heavily inflated the price and were making a huge profit as people voluntarily bought this ice which would not have otherwise been there, until they were arrested by the police for “price gouging”. The author then shares his astonishment as people clapped when they saw that these people were being arrested.

He does agree that it does seem intuitively wrong that these people did this, but he then goes through why in fact they were providing a great service.

The reason is that price fluctuates with demand and the conditions in which is it sold. Whereas people before used certain products (ice in this case) for a great deal of unnecessary things, the high price tells them to economise and only use the bare minimum. This ensures that others can also afford these essential products and means that some don’t have far more than other unnecessarily. 

A further consequence of this is that others will see the huge money to be made and will also come to the stricken area and provided goods at a high price. This is not sustainable however and eventually due to an increase in demand then price will decrease as people are willing to pay less.

This then moves onto a broader point which is that instead of banning “price gouging”, it should be instead encouraged as a backup for when federal governments are not able to support their citizens sufficiently.

In short, this paper argues that markets ought to be able to operate freely in situations of disaster to best help those in need.

What’s the Matter with Price Gouging?

2009

Jeremy Snyder

This paper argues that price gouging is a moral wrong as it is an instance where free markets are no longer functioning properly, and different rules ought to operate in these situations.

A key point made is that in times of crisis, the free market is not functioning properly. In normal times, people can look at each other as traders, with each trying to maximise profit and ensure the best deal. However, in times of crisis, people’s direct safety is at risk if they cannot acquire certain products, as so are in fact very vulnerable. Using their position to your own advantage is exploitation because of their vulnerability.

The paper continues to agree that price gouging can be a way to prevent scarcity. This is because the high prices mean that not everyone can afford them and so only those that are willing to pay the most have access to those goods.

However, the paper goes on to argue that this kind of system is incredibly unjust and means that only the wealthy get access to the most essential goods in times of crisis. This prevents of the poor, who need it as much, from being able to can afford it. This infringes on the key concept of equity in markets, where people are treated in a fair and impartial way.

This leads the author to think of a system where people are all given vouchers which they can exchange for certain essential products. However, this kind of system would be difficult to manage in a disaster situation despite successfully tackling the issue of inequity.

Instead he suggests that there be “1. limited price increases beyond those justified by increases in cost and 2. risk and caps on purchases of essential goods in order to ration supplies of those goods”. This would mean that those who are less well-off can continue to afford goods. Crucially, it also means that traders can cover some of the costs and risks that they are taking in providing these goods. A danger of keeping price the same as pre-disaster levels is that traders loose out as stock, business is decreased. This system ensures mutual advantage for both parties involved.

The paper also tackles some criticism of his view, namely that at least price gougers go out and help people who are in need, rather than doing nothing like many others. Instead, he argues that good moral behaviour develops over a consistently caring behaviour and also that these price-gougers have motivations of self-interest over that of helping others due to their high prices.

In short, this paper explains why we should impose some limits on the exchange of necessary goods in time of disaster as it is an exceptional circumstance, where the care and respect we have for each other overrides our desire for beneficial exchanges.

Matt Zwolinski

Price Gouging, Non-Worseness, and Distributive justice

2009

This paper is framed as a response to Jeremy Snyder: What’s the Matter with Price Gouging? and tackles 2 major shortcomings of its argument.

The first is that the “non-worseness claim” or NWC (of exchange), which, to paraphrase, means that a mutually beneficial exchange between 2 parties in which neither is worse off cannot be wrong. This is defended to be right as regardless of the moral standards of the individual, in the one instance where they behave in this kind of exchange, they cannot be seen to be being morally wrong.

The second point he defends is the argument that price gouging leads to goods being distributed in a way does not give all people the same access to goods and therefore does not properly respect them.

He argues that in times of shortage, this is inevitable as there are not enough goods for everyone to get an equal access to. Additionally, he argues that the proposed solution to this issue is more flawed. The alternative (in this case proposed by Snyder) of having a “lottery-like system” where everyone has the same chance of getting the same goods practically impossible. It is perfect for corruption, where friends or “insiders” help each other get better deals and it also unnecessarily prolongs the duration of the shortage.

In times of shortage, Zwolinski argues, the price rises a great deal signalling to entrepreneurs that if they manage this shortage, they can make good profits. If prices are not-elastic in this way, the markets can use entrepreneurs “self‐interest toward socially desirable ends”, one of its great strengths.

Zwolinski adds on to this by saying that other methods are not as an efficient as achieving this objective. Snyder’s method of only allowing “morally praiseworthy” increases that will maximise rationing by those who don’t need a good and ensuing that those that do can afford it are almost impossible to determine even by experts. The best and most achievable way is allowing free individuals to determine the price through regular exchanges.

In short, Zwolinski successfully defends the idea price gouging is, though not intuitive, the best way to support those in need in times of crisis.

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