# Price gouging during a hurricane? Them's the free market breaks, folks! **URL:** \ **Category:** The BBQ Pit\ **Created:** [August 31, 2017, 9:34pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200 "2017-08-31T21:34:04Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [September 1, 2017, 4:14pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/41 "2017-09-01T16:14:05Z")
**Inventories are expensive.** One of those most basic costs is the plain fact of inventory expense. If we want to encourage businesses to keep more supplies than the everyday non-emergency demand would dictate, then we would need to be able to pay for those inventories with higher margins during emergency situations. In that case, those higher margins would not at all represent extraordinary profits. They can represent the previous cost of those large inventories, kept during times when those larger inventories are extremely unprofitable. **High margins do not necessarily mean high profits.** If we look at the margin by itself, and dictate without further knowledge that it is “windfall/obscene/massive”, then we’re just speaking from pure ignorance. High margins don’t automatically imply massive profits, not when those margins are compensating other costs that aren’t included in the most direct reading of the margin during non-emergency times. There is cost in keeping large inventories. There is risk in keeping inventories when you don’t know in advance whether those inventories are a prudent investment. **There is cost in transporting goods during difficult situations.** Transportation costs skyrocket during emergencies. Even if we assume that all the evil local retailers can’t match our own virtuous perfection, it’s still the case that _refilling the shelves_ during emergencies is going to be much more expensive than refilling shelves during normal times, and that cash flow requirements are going to be much different given this additional expense. Managing cash flow is yet another cost that hasn’t seemed to receive much consideration. Businesses need to find some way to refill their inventories, and _it is easier for them to do that_ if they’re charging higher prices for their expensive inventories. This extra cash flow can help with re-supply given non-ideal, and extremely expensive, transportation circumstances. **It is ultimately an empirical question of whether higher prices bring more goods to afflicted regions.** In economic terms, the question is the “elasticity” of the supply curve during emergency times. Whether or not supply is perfectly inelastic is an empirical question, and cannot be solved by people asserting their own moral superiority without the benefit of any additional thought. We actually have to look at the way the world works to know the answer to this question. I’m far from an expert on emergency economics, so I’m not going to state _ex cathedra_ how reality works here – I simply don’t know – but if supply is sufficiently responsive to price in these cases, then by allowing prices to raise, then we _increase_ the amount of food, water, gasoline, basic medical supplies, and other needful items. That would mean more people get what they need, when they need it. And there are at least some reasons to think that supply is not perfectly inelastic even during emergencies. Inventories can be prepared in advance, if it’s not too costly to do so. Even more than that, disaster zones aren’t on the moon. They aren’t disconnected totally from the rest of the world. It’s more costly to transport items, yes, but it’s exactly in that very case where we should expect prices to rise in order for people to be able to cover that cost. It tends to be rare to see perfectly inelastic supply in other contexts, which might give us a hint about this context. Demand slopes down. Supply slopes up. That’s simple, but one of the reasons the idea is so powerful is that it tends to be right so very often. Everything is more costly during emergencies, and that has to be paid for. **Using emotionally charged terminology language doesn’t help us think clearly about reality.** I’m far from perfectly certain whether supply is sufficiently elastic to justify higher prices in this case, but if it is, then those higher prices are going to get needed supplies to more people, more quickly, at genuinely the lowest cost available given the alternatives. That might not be the case. In certain situations, rationing might be a better plan. (I might suggest hotel rooms here, whose supply can’t be readily expanded on short notice. Maybe Airbnb has changed that situation, tho.) The ultimate point is that we want to get supplies where those supplies are needed. It’s a topic that’s worth careful consideration, but when people throw around morally loaded terms, it means they’re already decided what to believe before they’ve even thought about it. “Gouging” is an emotionally charged word. If those high prices are paying for previous inventories, or paying to keep transportation routes functioning, then that’s hardly a story of exploitation. Rather, it’s a story that things are harder to produce during emergencies. Obviously a lot of shitty behavior can happen during a crisis, but a change in prices is not necessarily an example of that. Higher prices might simply reflect the reality of higher costs of supply. ---
**Author:** ![scr4](https://avatars.discourse-cdn.com/v4/letter/s/59ef9b/32.png) [@scr4](https://boards.straightdope.com/u/scr4)\ **Post date:** [September 1, 2017, 4:25pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/42 "2017-09-01T16:25:31Z")
> [@KellyCriterion](#): > > Rationing (requires a huge amount of administrative overhead) “Limit 3 bottles per customer” is a form of rationing, and doesn’t take much administrative overhead. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [September 1, 2017, 4:46pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/43 "2017-09-01T16:46:14Z")
> [@BobLibDem](#): > > If there is additional cost, they are justified in raising the prices as needed to reflect those costs. But they are not justified in taking advantage of a captive market in dire straits. My coworker in San Antonio can take the day off from work, load up his F150 with 125 cases of water, bring his neighbor with the gun to protect from [SDMB posters who think he should be shot](http://boards.straightdope.com/sdmb/showpost.php?p=20447512&postcount=67), and make one round trip to Houston. $2000 each in profit is reasonable for the risk and the lost vacation day. That’s $32 per case, plus whatever he bought it for ($9 at staples.) Others may be willing to do it for less or may have more than a 3300 lb max load. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [September 1, 2017, 4:48pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/44 "2017-09-01T16:48:04Z")
> [@scr4](#): > > “Limit 3 bottles per customer” is a form of rationing, and doesn’t take much administrative overhead. The store has little incentive to enforce this. If they sell out they can close shop and not pay anyone to come in. ---
**Author:** ![Chisquirrel](https://avatars.discourse-cdn.com/v4/letter/c/6bbea6/32.png) [@Chisquirrel](https://boards.straightdope.com/u/Chisquirrel)\ **Post date:** [September 1, 2017, 6:09pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/45 "2017-09-01T18:09:00Z")
> [@Ruken](#): > > The store has little incentive to enforce this. If they sell out they can close shop and not pay anyone to come in. How Randian of you. ---
**Author:** ![Colibri](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/colibri/32/1841_2.png) [@Colibri](https://boards.straightdope.com/u/Colibri)\ **Post date:** [September 1, 2017, 6:12pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/46 "2017-09-01T18:12:20Z")
> [@Ruken](#): > > The store has little incentive to enforce this. If they sell out they can close shop and not pay anyone to come in. Only if you assume that they have absolutely nothing else to sell than the supplies they are rationing. ---
**Author:** ![BobLibDem](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/boblibdem/32/3149_2.png) [@BobLibDem](https://boards.straightdope.com/u/BobLibDem)\ **Post date:** [September 1, 2017, 6:15pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/47 "2017-09-01T18:15:25Z")
> [@Hellestal](#): > > **Inventories are expensive.** > > One of those most basic costs is the plain fact of inventory expense. If we want to encourage businesses to keep more supplies than the everyday non-emergency demand would dictate, then we would need to be able to pay for those inventories with higher margins during emergency situations. In that case, those higher margins would not at all represent extraordinary profits. They can represent the previous cost of those large inventories, kept during times when those larger inventories are extremely unprofitable. Nobody is asking stores to stockpile goods in the event of emergencies. We’re talking about stores that have taken it upon themselves to gouge customers on goods they normally have in stock anyway. > [@](#): > > **High margins do not necessarily mean high profits.** > > If we look at the margin by itself, and dictate without further knowledge that it is “windfall/obscene/massive”, then we’re just speaking from pure ignorance. High margins don’t automatically imply massive profits, not when those margins are compensating other costs that aren’t included in the most direct reading of the margin during non-emergency times. There is cost in keeping large inventories. There is risk in keeping inventories when you don’t know in advance whether those inventories are a prudent investment. Again, nobody is suggesting that the stores in question stocked more inventory than normal. Most if not all of the price-gougers are simply tacking obscene profits on top of those they normally make. **There is cost in transporting goods during difficult situations.** > [@](#): > > Transportation costs skyrocket during emergencies. Even if we assume that all the evil local retailers can’t match our own virtuous perfection, it’s still the case that _refilling the shelves_ during emergencies is going to be much more expensive than refilling shelves during normal times, and that cash flow requirements are going to be much different given this additional expense. Managing cash flow is yet another cost that hasn’t seemed to receive much consideration. Businesses need to find some way to refill their inventories, and _it is easier for them to do that_ if they’re charging higher prices for their expensive inventories. This extra cash flow can help with re-supply given non-ideal, and extremely expensive, transportation circumstances. The goods being gouged were probably not brought in during the emergency, thus no extra expense was incurred. > [@](#): > > The ultimate point is that we want to get supplies where those supplies are needed. It’s a topic that’s worth careful consideration, but when people throw around morally loaded terms, it means they’re already decided what to believe before they’ve even thought about it. “Gouging” is an emotionally charged word. If those high prices are paying for previous inventories, or paying to keep transportation routes functioning, then that’s hardly a story of exploitation. Rather, it’s a story that things are harder to produce during emergencies. Obviously a lot of shitty behavior can happen during a crisis, but a change in prices is not necessarily an example of that. Higher prices might simply reflect the reality of higher costs of supply. They are not charging to keep the transportation routes going. They’re going to sell their stock for whatever they have the nerve to ask for and then shut down the store until normal supply links are restored. ---
**Author:** ![BeeGee](https://avatars.discourse-cdn.com/v4/letter/b/b5a626/32.png) [@BeeGee](https://boards.straightdope.com/u/BeeGee)\ **Post date:** [September 1, 2017, 6:26pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/48 "2017-09-01T18:26:41Z")
> [@Ruken](#): > > The store has little incentive to enforce this. If they sell out they can close shop and not pay anyone to come in. If that’s all they’re selling which is highly unlikely. I passed half a dozen gas stations last night that were not selling gas, but still open selling anything else they had. And probably fielding a lot of abuse and questions they couldn’t answer. It’s not the magic hand of God that is waved; it’s the magic hand of Greg Abbott (can’t believe I just said that) who declares that disaster conditions exist and therefore gouging laws are in effect for the basic necessities: fuel, food, water, clothing, and shelter. I’ve seen a few articles defending price gouging the last couple of days. I find their arguments shaky fiscally and off the deep end morally. > **[Column: Memo to economists defending price gouging in a disaster: It's still...](https://www.latimes.com/business/hiltzik/la-fi-hiltzik-price-gouging-harvey-20170828-story.html)** > > As surely as flooding disasters like Hurricane Harvey are followed by health concerns and homelessness, they’re followed by calls to legalize price gouging. PS: Check Gas Buddy. The stations have gas again. Hope people are enjoying their hoarded gas they spent three hours in line to buy last night. ---
**Author:** ![Thudlow\_Boink](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/thudlow_boink/32/320_2.png) [@Thudlow\_Boink](https://boards.straightdope.com/u/Thudlow_Boink)\ **Post date:** [September 1, 2017, 6:30pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/49 "2017-09-01T18:30:54Z")
> [@BobLibDem](#): > > The goods being gouged were probably not brought in during the emergency, thus no extra expense was incurred. It seems to be a common belief that the price that a seller should sell a commodity for (or the price a buyer should expect to pay) should be based on how much the seller paid for the commodity originally, and not on what the commodity is worth now or how much it would cost the seller to replenish their stock. But isn’t this an economic fallacy? ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [September 1, 2017, 6:52pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/50 "2017-09-01T18:52:37Z")
> [@BobLibDem](#): > > Nobody is asking stores to stockpile goods in the event of emergencies. We’re talking about stores that have taken it upon themselves to gouge customers on goods they normally have in stock anyway. > Again, nobody is suggesting that the stores in question stocked more inventory than normal. Most if not all of the price-gougers are simply tacking obscene profits on top of those they normally make. I’m asking them to stockpile and asking that they have incentive to do so, because I don’t have an irrational sense of fairness such that I would prefer people go without over someone making money. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [September 1, 2017, 7:29pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/51 "2017-09-01T19:29:34Z")
> [@BobLibDem](#): > > Again, nobody is suggesting that the stores in question stocked more inventory than normal. Why not? This is the one thing that would be most helpful during emergency. If there were more bottles of water in storage, there would be more available during emergencies. If there were more generators in storage, there would be more available during emergencies. If there was more gasoline in storage, there would be more available during emergencies. This “nobody” guy really isn’t very clever, if he’s not suggesting the one thing which indisputably would be most helpful when transportation routes are cut off. People need emergency supplies during emergencies, and it can be expensive to create that supply. Storage is costly, and it needs to be paid for. I lived for five years in a typhoon-afflicted region, and after I’ve lived for four years after that in a hurricane-afflicted region. I have large stores of water, and I would like other people to keep large stores of water, too. **The more emergency supplies that are available, the easier things will be during an emergency.** Everyone who is halfway intelligent should be recommending deeper inventories of emergency supplies, rather than the dangerously stupid advice of this silly “nobody” person you’re referring to. Everyone in a potential disaster area should have emergency supplies. Ideally, that would include retailers, too. I think it would be plenty nice if retailers had more than enough supplies on their shelves even for the most dangerous disasters. It would be helpful, it might even save lives. But that inventory space would have to be paid for. Inventories are expensive. It would require much higher prices during emergency times to offset the massive losses those inventories would incur during more regular times. There is no reason for any retailer to do that, if they’re going to get blamed for “obscenity” for pricing goods according to their actual cost over time. ---
**Author:** ![actualliberalnotoneofthose](https://avatars.discourse-cdn.com/v4/letter/a/e79b87/32.png) [@actualliberalnotoneofthose](https://boards.straightdope.com/u/actualliberalnotoneofthose)\ **Post date:** [September 1, 2017, 8:23pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/52 "2017-09-01T20:23:25Z")
> [@boffking](#): > > Are the ~$40 cases of water really an example of gouging? I’ve read a lot of angry articles about stores doing that, but at my school’s cafeteria, a case of water is $54, every day. > The bottles are $2.25 each, so if you buy a case, they charge you 24x2.25. Many of the stores that have done this don’t normally sell cases of water, so they probably did the same thing, not knowing the fair price for buying a case at a time. And people happily pay those prices for some reason. Personally, I buy 35-38 packs of water or 24-28 packs for $2.49- $3.99 all day long at the grocery store. I also pay around 20-25 cents per serving of soda when I choose to consume it but for whatever reason many people choose to pay $2 for one instead of $3 for a case. ---
**Author:** ![Doctor\_Jackson](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/doctor_jackson/32/32_2.png) [@Doctor\_Jackson](https://boards.straightdope.com/u/Doctor_Jackson)\ **Post date:** [September 1, 2017, 8:47pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/53 "2017-09-01T20:47:15Z")
> [@BobLibDem](#): > > The minute that disaster strikes, the free market breaks down. More accurately stated, the minute a disaster strikes the free market becomes a restricted market. Restricted markets follow a whole different set of rules. This is why anti-gouging laws and regulation of monopolies exist in a “free market” society such as ours. ---
**Author:** ![begbert2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/begbert2/32/3357_2.png) [@begbert2](https://boards.straightdope.com/u/begbert2)\ **Post date:** [September 1, 2017, 10:49pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/54 "2017-09-01T22:49:19Z")
> [@Ruken](#): > > My coworker in San Antonio can take the day off from work, load up his F150 with 125 cases of water, bring his neighbor with the gun to protect from [SDMB posters who think he should be shot](http://boards.straightdope.com/sdmb/showpost.php?p=20447512&postcount=67), and make one round trip to Houston. $2000 each in profit is reasonable for the risk and the lost vacation day. That’s $32 per case, plus whatever he bought it for ($9 at staples.) Others may be willing to do it for less or may have more than a 3300 lb max load. Hey, I thought **I** should be shot if I charged enough for a bottle of water to justify carting it 1800 miles in a Kia Soul. And since it would take about a thousand dollars a bottle to get me to do that, I’m pretty sure the angry mob that would form when I posted the price would do it for me, immediately before relieving me of my inventory at a decidedly lower price. I certainly never said that greedy bastards who charge triple price due to having a captive audience should be shot. Though I’m a little surprised we don’t hear about that happening more often. ---
**Author:** ![begbert2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/begbert2/32/3357_2.png) [@begbert2](https://boards.straightdope.com/u/begbert2)\ **Post date:** [September 1, 2017, 10:57pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/55 "2017-09-01T22:57:03Z")
> [@Thudlow\_Boink](#): > > It seems to be a common belief that the price that a seller should sell a commodity for (or the price a buyer should expect to pay) should be based on how much the seller paid for the commodity originally, and not on what the commodity is worth now or how much it would cost the seller to replenish their stock. But isn’t this an economic fallacy? I’m not sure what you mean by economic fallacy, but the fact that something will be harder to stock in the future has no inherent effect on the current price of the item. (If anything it’ll effect whether you stock it in the future.) Price is a function of what the seller feels they can get away with more than a factor of cost. Under a free market situation “what they can get away with” is dictated mainly by fear of driving too many buyers away or to a competitor. In disaster conditions it’s limited basically by how few scruples you have, how confident you are nobody’ll rob you of it instead, and in some places the law. ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [September 2, 2017, 12:54am UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/56 "2017-09-02T00:54:30Z")
> [@begbert2](#): > > …the fact that something will be harder to stock in the future has no inherent effect on the current price of the item. (If anything it’ll effect whether you stock it in the future.) Price is a function of what the seller feels they can get away with more than a factor of cost. One of the factors in determining what a seller thinks he can charge, though, is the buyer’s perception of how difficult it will be to stock more. It’s easier for a buyer to say no if she thinks more options will be on the way soon. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [September 2, 2017, 1:10am UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/57 "2017-09-02T01:10:11Z")
> [@begbert2](#): > > Under a free market situation E.g. Houston this week and most supposed disaster situations in the U.S. ---
**Author:** ![MrDibble](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mrdibble/32/114_2.png) [@MrDibble](https://boards.straightdope.com/u/MrDibble)\ **Post date:** [September 3, 2017, 7:06am UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/58 "2017-09-03T07:06:22Z")
> [@Jackmannii](#): > > Blatant gouging in health care often [doesn’t end well](http://www.chicagotribune.com/business/ct-martin-shkreli-fraud-trial-20170804-story.html) for the gouger. Shkreli’s trial was for securities fraud, not price gouging. You could argue that the gouging made him a target, but _if he hadn’t also been a fraud_, there would be squat anyone could do about the Daraprim thing, other than release alternatives(as Imprimis subsequently did) . And he was, IMO, a standout just because he was both blatant and unrepentant. I think he’s the exception, not the rule. ---
**Author:** ![SteveG1](https://avatars.discourse-cdn.com/v4/letter/s/bb73d2/32.png) [@SteveG1](https://boards.straightdope.com/u/SteveG1)\ **Post date:** [September 3, 2017, 4:15pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/59 "2017-09-03T16:15:24Z")
> [@John\_Mace](#): > > Lower prices encourages hoarding so net/net fewer people end up with what they need. Keeping prices artificially low without a rationing plan is a recipe for disaster. > > Anyway, I don’t know why anyone would think it’s a market failure if people don’t get what they need-- the free market is not designed to make sure everyone gets what they need. That’s what we have governments for. Yes. Exactly. And that is why it is not a completely free market and never will be. It is free up to a point only. Government involvement and monopoly/trust busting and all that, started BECAUSE of abuses. ---
**Author:** ![SteveG1](https://avatars.discourse-cdn.com/v4/letter/s/bb73d2/32.png) [@SteveG1](https://boards.straightdope.com/u/SteveG1)\ **Post date:** [September 3, 2017, 4:16pm UTC](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200/60 "2017-09-03T16:16:59Z")
> [@BobLibDem](#): > > If there is additional cost, they are justified in raising the prices as needed to reflect those costs. But they are not justified in taking advantage of a captive market in dire straits. Yes to this too. A captive market is not a free market. A free market implies both competition, and the ability of the buyer to go elsewhere. [Previous page](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200.md?page=2) [Next page](https://boards.straightdope.com/t/price-gouging-during-a-hurricane-thems-the-free-market-breaks-folks/795200.md?page=4)