Naturally the FTC wanted to charge all of Shkreli’s illegal trade conduct, but the number one charge was maintenance of a monopoly - in essence, cornering the market and jacking up the price.
The purpose of commerce is to make sure that goods move from producers to consumers. If merchants are not selling products or are selling products at prices most people can’t afford, or if consumers are buying up all the goods, they’re blocking the chain of supply. Under normal conditions, the free market should fix this, but there are certain situations in which deliberate action needs to be taken.
We have like a centuey and a half of antitrust law and competition law to look to for ways in which things like obtaining monopoly power (roughly, the power to unilaterally increase the price of goods) have been defined. We aren’t approaching the OP’s questions from scratch.
I take it you’ve never worked at a customer service desk.
Sellers get more opportunities to gouge. But buyers can, and do.
Buyers can and do rip off stores. But it’s a different kind of ripoff. It’s still not gouging.
Then you’re using a definition of “gouge” that’s irrelevant to the topic of this thread.
Buyers in the commercial space can and do abuse their power - “gouging” may not be the right word, but it’s a similar concept. But an individual retail customer simply doesn’t have that kind of power, although, as noted, retail customers certainly have been known to rip off stores.
I don’t think that importing items in bulk for .07 cents each and retailing them individually for a dollar each is gouging. Not at all.
It seems to me like a typical markup for small low cost imported goods. My brother’s comment was NOTHING costs less than a dollar at the retail level. If that’s gouging, then gouging is the price model for every single .99 store. Because I guarantee not many of those .99 items cost the store more than 7 cents.
When you are running a business like a small discount store, the cost of your merchandise may not be your biggest expense. The cost of maintaining a physical store and the displays are high relative to the cost of the merchandise and the average sale. If your local dollar store suddenly was forced to become your local .15 cent store -(by limiting markups to 100%), do you think they would stay in business?
Based on the information I have now, I think this case is bullshit. I suspect that the government has to make a show of beating up on someone in order to flex their oversight muscles - and they aren’t going to go after the large companies committing large scale malfeasance. They did the same thing with the oversight of bailouts after the 2008 crisis.
I think it’s related to (or possibly a subset of) monopoly/anti-trust actions.
One regime in which markets are known to be poor at allocation of resources is when there is single available seller of a good, or to a lesser degree an oligopoly with limited sellers.
Hoarding in this context is when accumulation of a good is done in an attempt to establish a local monopoly or to exploit a dysfunctional market. If the market were working efficiently, prices would clear normally and there wouldn’t be such an issue, but markets for these items are not healthy and are closer to a monopoly or oligopoly regime.
A monopsony may be the word for, it’s the single buyer analogy to a monopoly’s single seller. This can happen, authors have been concerned for quite a while that Amazon has too much power as the initial buyer of the majority of books, for example.
Exactly. In theory, letting the price fluctuate is going to ensure the most efficient (in economic terms) distribution of goods and services- i.e. that as the price rises, non-serious buyers won’t bother buying for casual reasons.
A hypothetical example might be hand sanitizer. Let’s say that it’s normally $4 for a 10 oz container. As demand goes up, if the price rises as well, you start running into the situation where there are a lot of people who’ll say “Eh… I’ll just use soap and water.” or “I’ll just do without” and not spend the higher price, therefore leaving those items available, albeit at a higher price, for those who need them bad enough to pay for them.
This is one of those self-adjusting mechanisms in the free market. Another is that once people realize that hand sanitizer is expensive, they’ll want to get in on that action, and will start producing it, or producing more of it. This will drive prices down naturally- someone will decide that they can sell more if they undercut their rival sellers. Eventually the price will reach an equilibrium based on the relationship between supply and demand.
What this isn’t is fair. There’s nothing that says that it will distribute it to those who really need it, but don’t have the wherewithal to buy it at the higher prices.
Price gouging and hoarding are distortions of this mechanism- price gouging is basically laying in a stock when something becomes scarce, and essentially charging a really high price because they know that the market has been temporarily disrupted and desperate consumers have no alternatives at the moment.
The time component and lack of alternatives are key- nobody would have called it price gouging had I bought a bunch of hand sanitizer 9 months ago and tried to sell it for $25 per bottle. They’d have just called me stupid. But do it right after the outbreak when sanitizer is nowhere to be found, and people would call it price gouging, because I’d be selling it at a point in time when the market is functioning in an extreme fashion, and buyers have no alternatives. Usually the latter is in demand-inflexible goods like medications, gasoline, etc… where people CAN’T just decide they don’t need it at all, or that they can use something else.
Hoarding is an attempt to influence the market into the extreme conditions by gathering up an unusually high amount of something in an attempt to induce a shortage and cause that market disruption, or make it worse. There’s also a much more loosey-goosey moral dimension that plays into having more than you need, and looking out for yourself rather than your fellow citizens. Even there, it’s a matter of scale. Nobody’s going to accuse me of hoarding N95 masks because there happen to be 5-6 of them out in my garage left over from some craft projects from years ago. But if I had stuffed my garage with pallets of masks, then yeah, that’s hoarding.
These are exceptional times, and it’s not acceptable when we’re in health crisis mode to have such a markup.
Singh according to the story basically ran a clothing and shoe store, until getting the idea that he could make big bucks hoarding and selling pandemic medical supplies.
"On April 14, postal inspectors searched Singh’s store and warehouse and seized more than 100,000 face masks, 5,000 face shields, 10,000 surgical gowns, 2,500 full-body isolation suits, and more than 500,000 pairs of disposable gloves.
That’s not the behavior of a typical clothing retailer.
And if a 1,328% markup wasn’t bad enough, there’s a sharpie in Vermont who achieved a 2,400% markup selling masks to a Vermont hospital in need.
My only complaint about governments going after price-gougers is that they’re typically so slow to take action. Every time we have health crises, environmental disasters, or other world events likely to affect pricing of essential goods, governments should be proactive in warning of the consequences to sleazebags of trying to take advantage of people’s needs.
Except that’s not how masks are packaged or sold. You can’t buy an individual mask. (At least not the type of procedure masks he was selling). You have a box or case of masks. A box of 50 masks is pretty standard. So, he wasn’t buying individually packaged masks for $0.07 each and then putting individually packaged masks on his shelf for $1 each. He was (most likely) buying a box of 50 masks for $3.50 per box and then retailing that same box for $50.
Which is FAR, FAR above the prevailing market price pre-crisis.
And, according to what I’ve seen of the government’s complaint, he wasn’t (or at least wasn’t just) selling individual items to walk-in customers at his retail store. He was selling in bulk to organizations at the same hugely inflated mark-ups, which, again, are FAR, FAR above the industry standard.
He will have his day in court, though. Maybe he will be able to show that his costs of doing business are vastly higher than usual in the industry (not impossible - he’s a small retailer with no history in dealing in PPE or medical supplies), and that his mark-ups were “reasonable” given his actual costs.
At that point, though, even if legally he’s not guilty, he’s still gumming up supply chains by diverting critical supplies and distributing them very inefficiently, and massively driving up costs for front-line providers who need those items.
And, BTW, according to the report above, well before he was charged, he was actually served with a Cease and Desist order for exactly that reason, but continued to stockpile those critical supplies, and then sell them at extreme mark-ups.
I largely agree but from a different angle. Not only are most ‘hoarders’ or ‘price gougers’ too small to affect the overall market, they also aren’t preventing ‘people who need it’ from getting it, if ‘people who need it’ are defined as people willing to pay the price the ‘hoarder/gouger’ charges. The idea is not to buy up the stuff and then bury it in a hole in the ground. The stuff gets sold, expect rather than some random selection of people getting it at the previous price, now far below market, before it sells out, people willing to pay the new much higher market price are the ones who get it. But either way ‘hoarding/price gouging’ doesn’t reduce the supply of the item. It increases it, unless you argue that a big price increase in a short time does nothing to scare up new supply; but it will eventually.
I think ‘gouging’ laws are populist bullshit for any kind of peer to peer private sector transaction. Although, I think you can argue for some kind of ‘eminent domain’ right for the public (via the govt) to buy up supplies of things for public purposes. For example seems to me better, simpler (I’m not dealing with the legalities) to just have bought up all N95 masks from supply dealers at some reasonable premium over the previous price, instead of jaw boning consumers not to buy them and drawing inherently arbitrary distinctions about what’s ‘gouging’ or not.
Governments might be slow to respond to price gouging, but the Free Market is even slower. Yes, if the situation remained unchanged for long enough, eventually the market would self-correct to stop the gouging. But that “eventually” is a very long time, longer than the situation is likely to remain unchanged.
You’ve created a tautology, by defining people who need something as people willing and able to pay outrageous prices for something.
So, the simpler, better solution is to have government bureaucrats buy up 100% of our critical supplies to then develop a supply chain to get them to the places they need to go?
This is better than letting our existing supply chains work as intended? The reality is that the vast majority of the supply is moving exactly as it’s supposed to, with the only ones running afoul of price gouging laws being bit players who are trying to make a short term windfall. The existing market doesn’t need those bit players to function, they don’t provide incremental demand information to producers and don’t improve the supply chain to consumers.
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I’ve pointed out a tautology, you mean. You can’t say people ‘didn’t get’ the ‘price gouged’ item if it was sold, which is the intention of the ‘price gouger’. That’s a basic fact the comment I responded to missed, not some artificial formulation of mine.
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I’m saying that in general ‘price gouging’ laws are nonsense. In some small subset of cases where the public actually needs particular end users to get a product, like where the public wants healthcare PPE distributed to healthcare workers before anyone in the general public can get it, the public (govt) can simply mandate that. Either buy it all up, or just mandate that it only be sold to certain types of end users. In greatly more numerous cases ‘price gouging’ means the public’s subjective judgement that it’s ‘unfair’ for something to be directed to the person willing to pay the most for it (like ‘our existing supply chains’ work everyday) if that price crosses some arbitrary boundary, in which case it becomes ‘fair’ instead for it to go to whomever shows up at the store before it rapidly sells out. It rapidly sells out because the price is too low.
The other sensible choice is organized rationing, like bottled water, gasoline etc. when there’s a ‘shortage’. It never makes any particular sense to say you just have to sell out your inventory in 5 minutes to whoever comes by first whenever supply is limited or demand surges, or else you’re violating the law.
Though consumer stores, especially big chains, are wary of raising prices much to offset sudden supply/demand imbalance because it will piss off consumers in the future, so they just sell out in 5 minutes. Fair enough if they want to do that. But that’s not necessarily doing the public any good. Back to point 1, it’s definitely not creating new supply to do that, nor is it withholding any supply to raise prices to supply and demand balance. The short term supply is at worst fixed, though even short term higher prices have a way of scaring up more supply.