Over in the GD, there is a discussion about compensation and what drives pricing, etc. etc.
I’m curious what how people here view this scenario, which occurs almost annually. Please vote in the poll first before reading any of the comments or discussion below.
SITUATION
Every year when hurricanes threaten our southern Atlantic and Gulf coast states, many people rush out and purchase plywood to board up the windows of their homes and businesses. As the storm conditions begin to onset, hardware and home center stores commonly raise the prices on plywood by more than 500%. Is this price gouging or is the market working efficiently?
It’s not purely either option, and particular circumstances could tilt it one way or another for different cases, but I voted for efficient markets. If you everyone needs plywood in a hurry and there isn’t enough to go around, the surest, quickest way to get more of it into the area is with the promise of huge profits.
Of course, if it’s a case of there being plenty of plywood to go around, but it’s being hoarded either through collusion between merchants or the presence of a de facto monopoly, *that *would be price gouging.
Not surprising a large % see it as price gouging. I would argue similarly to VarlosZ that is an efficient use of the markets. Here are my reasons.
If laws were put in place to keep the price of plywood capped during an impending storm, potential negative consequences may occur.
people wanting plywood for non emergency reasons would continue to buy it was still priced appropriate for their non-emergent use. This reduce the amount of plywood inventory available for people needing to protect their homes and businesses.
there would be no incentive for businesses holding plywood inventories in other parts of the country to ship it to the areas where the storm was coming, because they couldn’t get a higher price than holding it and selling it in their own backyard.
as a result of the two conditions above, there would be a shortage of plywood for the emergency use needed and a lot of people would not be able protect their homes and businesses.
the ability of the market to raise the price, helps insure that there will be enough plywood available for everyone that needs it in the emergency situation.
If plywood is capped at its usual price, the first 20 people to show up will buy all of it. There’s no reason for them to buy only just what they really have to have, so they’ll buy plenty extra. They may plan to sell what they don’t use for a big profit (and then you’re back where you started). Then there won’t be any left for everyone else. Meanwhile, the stores won’t get in much more plywood than usual, because it costs money to divert lots of plywood to a different destination than usual and as above, there won’t be any incentive to bring it in. The result will be a lot of broken windows as only a few people get any plywood at all.
It works the same for the hotel rooms around a big storm–if the rooms cost the same as usual, then the first people to show up will happily get 2 rooms for their family instead of squishing into just one. People who could go sleep on someone’s floor for free will decide to spend the small amount needed to sleep in a bed. The result will be that many fewer families will get any shelter at all. If hotel prices go up, then only the people who really have to have a room will be willing to pay for it.
So while it’s no fun to have to pay through the nose for plywood and hotel rooms, there are good reasons that those prices go up so high. The plywood and rooms get spread around to many more people that way, even though some still lose out.
I wonder this too–I have a stockpile of water in case of earthquakes, etc. I presume that many people do keep plywood in their garages, but there are still lots of folks living in apartments or otherwise unable to keep a pile o’plywood around. And some people won’t think ahead no matter what.
I picked “Definitely price gouging” but I think I have sort of changed my mind. If we’re only talking about the sort of situation in the OP, where the disaster hasn’t yet happened, it may not be price gouging. Especially considering that these storms pop up every year and people pretty much know what to expect.
When I thought about price-gouging, my mind immediately conjured up images of post-disaster situations, like Katrina and the icestorms a lot of the US experienced December 2008-January 2009. In those situations, when people are trying to fix damage/buy things for survival rather than prevent damage in the first place, jacking the prices up 4x is gouging. The prices of generators going up four times their normal amount still leaves me bitter because the storm was the worst in a century and no one had any idea that power would be out for a week, so it was hard to prepare for something with just a day’s notice from forcasters that it’d be “bad” and no basis for comparison with other storms.
So…jacking up the prices on things people might need beforehand is more morally gray than jacking up prices only after an unexpected/much worse than aniticipated disaster.
Interesting - the majority say gouging and yet none of them has come up with an argument as to why, or any rebuttals of the arguments made by the market forces folks.
I think it is the market operating efficiently for the reasons given by several others already.
Looming hurricanes is pretty much a yearly event in many areas.
What do the people in these areas do with the plywood they bought during the last hurricane warning? It doesn’t deteriorate that quickly and it doesn’t take up that much room, does it?
Like he said, the high prices due to demand and lack of availability will entice people to bring in plywood by the truckload to try to cash in on it.
If people are willing to pay 4x the price, then why should the guy artificially limit his prices to sell to those who wouldn’t be willing? He’s probably not setting his prices at 5x because people would find plywood substitutes instead of just bitching.
On the other hand, gouging is when there’s some sort of non-free market going on (asymmetric information, collusion, monopoly, etc…) and that’s used to artificially keep prices higher than they otherwise would.
There’s not really a moral component to the way markets work- individual actors may apply moral principles, but markets aren’t moral or immoral; they’re just an aggregate description of a bunch of discrete transactions and potential transactions.
Another vote for the market working like it’s supposed to. If a sheet of plywood is normally $20, but today people are willing to pay $100 for it, then that’s the price it’s going to be. And as someone else said, if Home Depot is going to charge $20 then someone is going to buy them out and charge $100 for it. I’d rather just get it at the hardware store then have to drive around town looking for someone selling it out of a truck anyways.
A few years ago we had torrential rain in my part of the state. A lot of sump pumps failed during that time and the water was steadily filling basements. Suddenly $80 sump pumps were on the shelf for well over $200. Again, it sucks. But when the hardware store only has 20 of them left and they can’t get anymore in until tomorrow and they know they’ll sell all 20 in the next few hours no matter what they charge, then they might as well make the extra money on them. Again, it sucks, but it’s how our economy works. And with that, the people that watched the weather and saw that we were going to be getting 6 inches of rain in two hours the next day still paid the normal price when they ran to the store and picked up a back up pump.
Which reminds me, my pump (assuming it was installed when the house was built) is about 13 years old. One of these days I need to replace it for good measure…and put in a secondary, battery operated pump while I’m at it. When we get these huge downfalls, like we did two weeks ago, my pump ran steadily for three days. It sucks to think that even though it only rained for a few hours, if my pump had failed two days later my basement still would have flooded.
I voted that “Your crack-a-lackin crazy and its neither”. Sorry. Your words, not mine.
Actually what I wanted to vote is “Your crack-a-lackin crazy and its both!” To think that a vendor “price gouging” is somehow different from using the market in his own rational self interest presupposes incorrectly, IMHO, that capitalism has some imposed morality.
Let’s look at it this way, if I said, hospitals in NYC had a right to raise their prices on 9/11 because the market was there, what would you say?
If Saint Vincent’s hospital said, “You know what, people should stock up on bandages, now that we have so many victims, we’ll charge more because we can get it.”
A hurricaine is a similar event. It is a distaster in which people must act as a community and a society. You do NOT charge more than what is normal, simply because the market will bear it, when it involves a crisis.
I think part of the problem with this thread is that we have lots of people who don’t understand what a market is, and are confusing it with individual transactions and then crying “Price gouging!”
One guy selling a sheet of plywood to another for $200 isn’t a market, unless that sheet of plywood and the two guys are the entire universe of products, buyers and sellers.
A market’s really the aggregate reflection of two things- demand for a product and availability of the product. The price of the item is pretty much where those two interact.
In the case of a hurricane, the market’s just reflecting that dipshits (IMO) who didn’t prepare when plywood was cheap need plywood NOW, and are willing to pay that much for it. I guarantee that if nobody was buying it at the high price, the sellers would drop it- they don’t want to get stuck with a bunch of plywood that might also be destroyed.
Where price gouging would come in is in situations where there is a monopoly on supply, which is effectively what happens AFTER disasters, where due to either governmental or disaster-related effects, the free flow of goods into an area is curtailed. The markets don’t operate in an efficient fashion (well, in an economic sense, they might) in that they’re not getting the right goods to the right people because some asshole is sitting on the only supply.
Again, it’s not the market’s fault- it’s that individual asshole sitting on his heap of plywood who’s causing the problem.
Blaming the market for price gouging is like blaming physics for deaths in a plane crash.
You’re saying that an attempt to influence price by creating supply pressure isn’t part of “the market”? What then about efforts to manipulate price by creating demand pressure, such as by advertising? Is that also outside the province of the market?
The “free flow of goods” is always curtailed by logistical factors of one sort or another. At a starting minimum, natural resources are distributed unevenly across the world and among populations. Things grown or mined here can’t sell for the same price there.
I’d say that–in the real world and not some abstractly pure theory which can never be “blamed” for anything–the market is the aggregate of supply and demand and all factors which influence them.
In what sense can we speak of markets except the economic? And as VarlosZ notes, dramatically higher prices are often what will get urgently needed goods to the right people most quickly.
Price gouging is the market. It’s more extreme than what you see on an everyday basis, but it’s not fundamentally different.