But those two guys are part of the market, which is something that you seem to be ignoring.
If this is the case—and i think it is—then why is a monopoly not just another example of market behavior? If one person is efficient or lucky or organized enough to have control over supply, why is it “gouging” if he sets his price as high as demand will allow?
You’re making an artificial distinction here.
Sure, direct government intervention is one thing; we’ll leave that aside. But if one guy manages to seal up his factory properly and ride out the storm, and then has a temporary monopoly as a result of “disaster-related effects,” why is it gouging for him to charge what the market will bear? As spark240 says, the market should be considered the result of supply and demand and all the factors that influence them.
Channeling spark240 again, i’m going to ask what the hell a market is except an economic entity. You spend time berating people for not understanding markets, and yet all you’re doing here is substituting your own moral priorities for market forces.
There’s nothing necessarily wrong with that. As a society, we often make laws and rules that promote social welfare or particular moral preferences over market forces. It’s part of what makes us human. But to do that, and at the same time continue to trumpet the absolute primacy of markets, is completely misguided.
I think you’re right here, but not in the way you think.
Markets are responsible for price gouging, because the relationship between supply and demand that is so crucial to markets allows people with supply to jack up the price in a period of high demand. And disasters like hurricanes have effects on supply and demand that temporarily shift the equilibrium or market-clearing price of particular products, both before and after the event. Basically, people couldn’t gouge is there were not sudden shifts in demand and supply.
In the same way, while particular problems with the plane or pilot error or whatever might precipitate a crash, the fact is that physics is ultimately responsible for the fireball at the end. Gouging doesn’t exist without market forces; plane crashes don’t exist without physics.
I would say that is a terrible example since the fee structure for health care does not even come close to resembling free markets. The hospital HAS to treat you if you show up to the emergency room. Payment is made through a complex arrangement between the hospital, patients and insurers.
Very touchy feely, however it demonstrates a total lack of understanding of how economics works and why there is a benefit to free markets. That is to say, failing to see how restricting the price actually does more harm than good, even though you mistakenly believe it is somehow morally “right”.
A hurricane is a regular, predictable, seasonal event in places like Florida. If everyone waited until the last minute of the arrival of the first storm every season, there would simply not be enough plywood at any price. The short term price spike before a storm encourages anyone with half a brain to buy plywood BEFORE the storm comes. As there will always be people who procrastinate, their behavior is punished by having to pay higher prices at the last minute.
It also encourages enterprising individuals to stock up on plywood during the off season so they can sell it at a profit during hurricane season, thus ensuring an adequate supply.
It only becomes “gouging” if somehow the lumber companies manipulate the market by artificially restricting the supply during the off season.
The last time I bought plywood to board up a house was the year before Katrina. I don’t remember what storm it was, but it was threatening to come to New Orleans and then became a non-issue. (This storm was the first time I ever remember hearing of a mandatory evacuation other than low-lying areas and I"m pretty sure the first time that they activated contra-flow on the Interstates around New Orleans)
I was at Home Depot a couple of days before there was any talk of a mandatory evacuation and they were completely sold out of plywood. There was a line of people with the big orange carts weaving throughout the store and they were waiting for the next truck to come in. They were dropping the plywood in stacks right outside the exit door and the entire truckload was gone in minutes. I was told it would be a 6-8 hour wait.
The price wasn’t higher than normal, but I guess they made their money on the volume. The trucks were coming in from a warehouse somewhere on the outskirts of the city and were arriving about once an hour.
There is an oft repeated story in my family of my great grandfather in Holland who serendipitously filled a warehouse with potatoes and hung on to them till the following year when a potato famine hit the country. If he was willing to forego the immediate gratification that earning cash brings for the hope of better return in the future, then I say all the more power to him. We need guys like him that look to the future and the market is the best determinant of the value of a commodity at any given time.
Possibly. I actually had a Dutch uncle who ran an experimental farm for the government in the Netherlands playing with bins of potatoes at various combinations of humidity and temperature to learn more about how to keep potatoes.
Because in that situation, there isn’t a real concept of “what the market will bear”- that guy is unilaterally dictating the price with no competition to allow that price to settle out to what the market will bear. That guy sitting on the mountain of plywood can charge whatever he wants because he’s the only game in town. It’s called a “coercive monopoly” and a “non-contestible market” because nobody is contesting that guy, and he’s making his decisions independent of any market forces.
Monopolies are generally considered bad- the only time that they’re considered acceptable is when there’s some kind of service like local phone service, gas service, etc… where the benefits of a single operator outweigh the problems of a monopoly. Otherwise, you run into situations like AT&T and the Bells, Microsoft in the 1990s,
I don’t think there’s anything wrong with it as long as there is not collusion to raise prices artificially, which would essentially be a cartel.
People have this quite reasonable idea that in times of crisis people should be charitable to their neighbours. That’s fine, and I agree with it, but in the case of people selling plywood, say, that’s their entire livelihood. Be charitable, yes, but destroy their business? No. It’s like saying that everybody should work for free whenever there’s a disaster, because one way or another all working people contribute to the functioning of society.
You’re right that monopolies are considered bad. But, as far as i’ve ever been able to tell, this is a moral judgment that really doesn’t bear much relation to the notion of market forces.
I’ve never read a really compelling argument as to why monopolies should be considered a violation of the principle of markets, rather than simply just another manifestation of market forces. Many people argue that, in a properly functioning market, monopolies won’t persist because their attempts to control supply will lead to the emergence of competitors. It seems to me that, if you accept the principle of unrestricted competition, you should also accept the fact that a single competitor might win the competition and claim the market all for himself. I don’t want to sound like Lenin here, with his argument about monopoly as the final stage of capitalism; but i do think that monopoly is, far more often than some people want to admit, a result of the market working, rather than a result of market “distortions.”
As for the particular example we’re talking about here, sure there’s a price that the market will bear, even with just a single seller. The only difference is that, in this particular case, that price is so high that we give it a moral label: gouging.
If the normal market price for a product is X, and the guy sets his price at 3X, he will probably still get some buyers. If he sets his price at 10X or 20X, maybe no-one will buy at all. This suggests that, somewhere between 3X and 20X, there is an equilibrium price that will allow him to sell all his product for the maximum return. Even if that equilibrium price is more than most people would consider “fair,” and is labeled “gouging,” if people buy the product at that price then it is, by definition, a price that the market will bear.
And we haven’t even yet considered why this guy has a temporary monopoly. Maybe, for example, he is the only seller in town after the hurricane because last year he spent thousands of dollars to hurricane-proof his warehouse and store. If he did this, why should he not benefit from his foresight? He made an investment in something that he knew would allow him to stay open when other people are closed.
Your use of Microsoft as an example is, i think, quite instructive in this whole debate. Personally, while i understand that they were found to be in violation of anti-monopoly rules, i never quite understood the moral outrage at the company. They started from almost nothing, the grew to a stage where millions of people used their operating system, and decided to bundle their web browser with their software. While i understand how this benefits the company, by forcing people who want their OS to also take their web browser, i don’t understand why this got people so outraged. What is the point of engaging in competition for market share, if you can’t take advantage of that market share to further benefit your company? I can’t make ford sell me a car without a Ford engine in it; why should i be able to force Microsoft to sell me an operating system without Internet explorer?
In case it’s not clear to anyone here, i’m making a devil’s advocate sort of argument here. I do believe that there are plenty of occasions where, even if the market is more efficient (not as cut-and-dried an idea as some believe), our society has priorities other than efficiency. I believe that economic and political policies that interfere with market forces often do so for good reason, and to our general benefit. I also, for that matter, have no real problem with anti-gouging rules put in place after disasters and similar unusual events.
But it still seems to me that, to bleat about the primacy of markets on the one hand, and to complain about gouging on the other, is really to miss the whole function of markets, which is to adjust prices according to circumstances. And if the circumstances leave one guy with a temporary monopoly, either due to luck or to his own good management, that’s no more or less a market force than the normal state of competition.
With the reservation that, if the price roughly doubled because of supply and demand, well that’s pretty natural.
But, I think they were charging far beyond that.
Plywood doesn’t last very long if you have no place to store it properly, especially here in the affect state areas.
So, I would have to buy it every other year. Cut it, fit it, drill it ect…that gets old after like, the second time. The kicker is that I never even used em. :rolleyes:
Besides, it doesn’t really do anything but keep the glass from breaking by twigs and small debris to keep the rain out.
Better off getting roll down metal shades. That are affixed permanently.
If it’s acceptable to charge double in exceptional circumstances, why not triple, or ten times? And if it’s not acceptable to charge ten times, or triple, then why is it acceptable to raise prices at all?
The issue with Microsoft, Windows and IE was because by bundling IE 3 for free with Windows 95, they essentially used their overwhelming dominance in the OS market to effectively obliterate the browser market almost entirely.
In one fell swoop they effectively eliminated the market for internet browsers; not because their browser was better, but because their OS was dominant.
Beyond that, they used their dominance in the OS market to dictate to their downstream partners that they would ship PCs with Windows & IE, or they wouldn’t be allowed to ship PCs at all. (I believe Dell or Compaq wanted to ship PCs with Windows and Netscape, IIRC) Knowing that PCs with linux wouldn’t sell so well to the general public, they had no choice but to go along with it.
Again, IE was on all the PCs being sold by those vendors, not because it was superior to the competition, but because Microsoft had dominance in an entirely other market.
They did the same to other markets when they rolled a bunch of stuff into Windows 95; think disk caching, memory management (QEMM, et al…), etc… but the only reason that they didn’t get dinged for that as well is because those are legitimate components of an OS that MS never put in DOS. An internet browser is not really part of an operating system as such; it’s an application that’s generally considered an integral part of a functioning computer, but not really part of the OS, per se.
I was well aware of every issue you raised. Doesn’t change my argument at all.
While we might have decided that Microsoft’s behavior violated our sense of fair play, and the courts might have found against the company, i still see nothing within your argument that convinces me that this wasn’t a case of market forces working in a perfectly natural manner.
Microsoft gave their browser away. They didn’t stop anyone else from developing a browser. They also didn’t force anyone to buy their operating system. They simply made taking their browser a condition of buying their operating system. People were free to put different operating systems on their hardware.
How odd. The market in my neck of the woods operates efficiently, but in a different way. In June, before an approaching hurricane, the Home Depot stores in the Lower Rio Grande Valley area of Texas not only sold supplies at their regular price (from what I could tell), but they initially sold them in the parking lot and loaded them into the car with the customers not even having to get out! Apparently, Home Depot anticipated the possibility of a hurricane and had some way of having enough on hand to meet everyone’s needs. According to newspaper reports, after the initial rush, it was not all that busy. In this case, I figure that the market worked like it usually does, there was a high demand and someone figures out how to efficiently meet that demand. I am suprised if someone is selling something that is in high demand for 5x the price that someone hasn’t already figured out how to sell it at 4x the price, or 2.5x, or at the usual price.
It’s valuing money more than people. I don’t know anyone besides hardcore Randians that think that is moral.
As pointed out above, the moral response would be to stock up on supplies. You know the crisis is coming, and that, by increasing supply you will not only make more sales than usual, but also actually be helping your community rather than giving it the finger. If you choose to merely increase prices, then your sole interest is you making money off a tragedy.
I didn’t vote, because I think it’s both. Just shooting from the hip, I’d say that in your 500% scenario, maybe 250% is natural market forces and the other 250% is each link in the supply chain arbitrarily taking extra for themselves. Of course, some consider that the folks arbitrarily taking extra for themselves is in itself a natural market force.
Then you’ve never talked to anybody who knows the slightest thing about economics. Monopolies are considered bad because they are economically inefficient. They will deliver fewer goods to the market than firms in perfect competition, at a higher price.