With the current, strange, state of affairs markets for goods are thrown in to turmoil (toilet paper being an obvious one).
Since my company is working from home I was tasked with recommending a webcam everyone could buy so we could do meetings and what-not.
No problem, I thought, these things are pretty cheap. My girlfriend bought one for $25 a few months ago.
Nope…the prices have skyrocketed. The one I bought for $50 had a low of $40 but is now selling for up to $330.
Is this just plain old capitalism? An item is worth what people are willing to pay for it…a “pet rock” can sell for way over what a rock costs kind of thing. Or is it ok to say screw capitalism, who cares about pricing things to what the market will bear, and instead fix the prices at some artificial place?
Put another way…is price gouging actually gouging or just plain-Jane capitalism? Where is the line drawn? Webcams are not bread.
IMHO, it is heavily subjective. Increasing the price of a good by a small, modest amount is reasonable capitalism. Spiking it by 400% is price-gouging. IIRC, attorney generals typically remain deliberately vague on what extent exactly counts as predatory price-gouging, to keep would-be gougers hesitant and deter them from raising prices.
There is an argument (that I don’t entirely subscribe to) that price gouging is a good thing. That webcam you were talking about. A higher price means that some kid just wanting to send pictures of his ass to his buddies will not pay the inflated price, but if you have an essential from home business, you will. That causes the most efficient distribution of webcams to the people who will make the most productive use of it. With anti price gouging laws in place, you and the kid are on equal footing.
Likewise, it gives incentives for companies to ramp up production for items that are in high demand. If the price of toilet paper, for example, was allowed to increase 400%, then companies could temporarily hire new workers to ramp up production to get more toilet paper on the shelves whereas now there is none. Wouldn’t you rather have the option to pay 4X the price versus no toilet paper?
The only reason I can think of for having the laws is that it just seems immoral to “take advantage” of a situation, especially with necessities.
I don’t mind so much the primary producers and, to a lesser extent, the normal distributors, raising the prices, even significantly. But subjectively, when people start buying up stuff to try to “corner the market” is when it starts to feel like price gouging.
I think there’s a big difference between raising prices on necessities (like medicines, water, etc) and raising prices on non-essentials.
So a webcam? Raise prices away. If someone can’t afford a $330 webcam, then oh well. $330 for one of those adrenaline auto-injectors (forget what they are called) is fucking criminal.
The problem with your contention is it distributes the good to those with the most financial means to push their desire for the goods regardless of need. So in that there is inefficiencies of getting the good to those in need, just those with enough money and willingness to pay the price. In your example, the snot nosed kid could easily buy that for sending his picts to friends, and you are SOL because his parents bankroll his spending.
Do remember that the US has moved more and more to a lean supply chain and just in time service model. At the same time, China shut down manufacturing, and is just now getting supply chains and manufacturing restarted. For lower per item cost goods like webcams, these will go on a boat, which reasonably adds 6 weeks to when it leaves to factory to when it is in US distribution (3-4 weeks by boat, clear customs, to the distribution center, then ship direct and/or to retail). AND, since these are probably seasonal items that sell most at holiday, that means the normal production ramps up big time in June-October, and then falls to 5% volume the rest of the year.
Net net, demand skyrocketed and its the low season for new supply to reach the US in volume until August.
Supply and demand. There’s a huge demand for webcams right now as everyone sets up to work at home, and supply can’t keep up with demand.
In cases like that, you have three options:
You can demand that the price not increase, or that it only increase a certain percentage. If that price is below the market-clearing price, you will have shortages of webcams. So the ‘non-gouging’ model may be that webcams are no longer available at any price. In addition, if suppliers can’t raise the price, they have no incentive to increase production or work hard to dig up supplies.
You can ration them. Some government agent, I guess, would have to decide who ‘needs’ a webcam and who doesn’t. This runs into the calculation problem, because it’s impossible to determine this kind of hierarchy of need outside a market. I have an old webcam, but I have to give a presentation to a bunch of doctors. My neighbor has no webcam at all, but he ‘needs’ one because his team meets online once a week. Whose ‘need’ is greater? Because of this problem, rationing is always inefficient, and often gets subverted by special interests and corruption.
Allow ‘price gouging’. Webcams get scarce, and the price doubles. Now, people whose need for a webcam doesn’t rise to the new price drop out of the market, allowing webcams to be available to those who have a greater need for them. In the meantime, the high profits that can happen when ‘gouging’ will cause production to increase, for people to dig up supplies, for people to put their old webcams on eBay so they can profit from them, etc. Demand goes down, supply goes up, until we get to a new equilibrium.
Think of what happened with toilet paper. People who actually needed it badly couldn’t get any at all after the first couple of days, while others wound up with shopping carts full of the stuff taking up space in their garages, ‘just in case’. If ‘price gouging’ is allowed, the person who was going to buy a shopping cart full goes, “Whoa! $25 for a 12-pack? Screw it. I’ll just buy a couple of packs then.” And now the people who are completely out of toilet paper can buy some - and complain bitterly about gouging. But at least they have toilet paper.
In the meantime, toilet paper becomes a high margin item, so everyone in the supply chain busts their ass to make as much of it as they can, as quickly as they can. As the supply crunch eases, the price comes back down.
‘Price Gouging’ is a social good. It’s what helps to organize scarce resources and make sure they go where the need is greatest.
You make it too easy, putting your most ridiculous argument right up front.
Take a look around you. Would any fewer webcams be sold at the lower price? Would any supplier have any incentive not to get as many as possible out the door now when the demand is greatest? Would anything at all be different except for the profit margin of the company and the flow of wanted goods to the wealthy?
No, no, and no. Which is why the public demands laws against that shit. And why you can’t win this argument by actually making our case for us.
Yes, yes, yes. There are plenty of used webcams out there. I have some. Somewhere. I moved last year and don’t know where they are. Offer me enough money and I’ll bother spending the time to find them and sell them.
Any company capable of producing webcams but currently not now has the incentive to retool. It makes no sense to do so for a temporary demand spike without an increase in price.
Because their profit will be lower if they spend money to change operations.
The solution here is not laws but education and mocking people’s irrational sense of fairness (which can be irrational to the point of self-harm, especially in people with certain forms of frontal cortex damage, see 10.1523/JNEUROSCI.4606-06.2007).
If I make webcams, and I know that, for the next six months, I’ll be able to sell them at 1000% markup, I’ll buy more raw materials to build them, and more workers to put them together. It won’t be as much of a risk for me to do so, because I know I’ll be able to cover the costs.
End result: the supply of webcams goes up. More people get what they want.
Also, let’s say there’s a guy down the street who owns a company that makes other computer products. With the price of webcams going through the roof, he now has a very strong incentive to diversify his existing set-up to try and break into the webcam market. The risk to him is much lower than it would be otherwise because the profit margin is so much higher.
End result: the supply of webcams goes up. More people get what they want.
And think of all the people stuck at home looking for ways to make a as little extra money. Maybe they start hunting through their garage for things to sell and find an old webcam they’re not using. If webcams are going for $300 a pop, they’re much more likely to sell them to people who actually want them.
Meanwhile, the people who don’t really need webcams that much are dropping out of the market while the neediest people are making special arrangements to get hold of them.
End result: well, you know…
Price gouging is painful, because it’s a form of rationing. But leaving prices exactly as they are during a crisis is a form of rationing, too, because if prices don’t rise then the first panicky greedhead with a little money in his pocket is just gonna buy everything, and manufacturers won’t be motivated to go the extra mile to replenish the supply. Keeping prices artificially low also stops new suppliers from joining the market, because, well…what’s the point?
Price gouging cures all that. It puts the handbrakes on panic buying, it ensures that scarce goods are replenished as quickly as possible, it helps keep the greediest people from snapping everything up, and it maximises the chances that the neediest people will be able to acquire the products.
Slight off-topic: I’m kind of surprised your company wants everyone to have a webcam for meetings. My work laptop has a built in camera which has had a sticky note covering it since I got it. I do not broadcast my face during conference calls.
Who wants to see everyone else all disheveled working from home? Isn’t audio enough?
Where “special arrangements” and “acquire” are euphemisms for what exactly?
I’m going with armed robbery and/or selling a kidney. 'Cause otherwise I’m not seeing how needy (which is an euphemism for what exactly?) people raise enough cash to enjoy the privilege of paying 1000% markup on items they could barely afford in the first place.