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Comment by anikan_vader | Hacker News Reader

From an economics stand point, I don't understand why the government should ban price-gouging. Doesn't this place an artificial price ceiling that will ensure a shortage of goods? I would personally rather stores have items such as food/water at marked-up prices than not at all.

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Because a lot of the short term price gouging is artificial/predatory:

"Vancouver couple exploits pandemic by hoarding Lysol wipes and charging double to resell them."

https://www.thestar.com/news/canada/2020/03/12/were-hustlers...

They are not raising prices to produce more, but just hoarding and then reselling it at higher prices.

"Price Gouger Unable to Sell 17,700 Bottles of Hand Sanitizer after Amazon Crackdown"

https://www.nytimes.com./2020/03/14/technology/coronavirus-p...

I would argue that the supply/demand pricing isn't responding fast enough to the hoarders. If the price was fully elastic, as people began to hoard lysol wipes, prices would rise on the hoarders and make it much less profitable for them. But prices aren't rising correctly, much like an artificial price ceiling would do, making it possible and profitable for hoarders to create a shortage.

>I would argue that the supply/demand pricing isn't responding fast enough

Yes, that's a failing of the real free market we live. It already failed so I don't see why suggesting the status quo is useful. In the real world we're not all omniscient, rational actors. Protections like this are useful in the short term.

>Protections like this are useful in the short term.

Explain how this "protection" will stop the stated problem of people hoarding and reselling. Since when have fines or punishment stopped black markets from existing?

>It already failed so I don't see why suggesting the status quo is useful.

"The car brakes couldn't decelerate the car fast enough, they failed, so I don't see why suggesting better brakes is useful." Decentralized, free market pricing is enormously robust and flexible and has allowed the global economy to flourish. But since it has failed you, what would you like to replace it with?

If you don't think any laws are successful and we shouldn't use them then I don't know what to tell you. How about parking tickets or a million other behaviors we shape through fines?

Free markets work in the long term but as they say the market can stay irrational longer than you can stay solvent.

I understand how laws shape behavior, but I also believe that for a law to be effective, it has to be worth the effort to enforce it. This law doesn't protect anyone, as you stated it would, unless the government is spending its limited resources chasing down TP resellers and confiscating their goods. It certainly isn't going to stop the hoarding.

> Yes, that's a failing of the real free market we live.

We don't live in a free market. Not even close.

I would argue that since these laws exist, commercial suppliers are unwilling to raise prices for fear of being penalized under this law. That prevents the market from working naturally, and allows these individual gougers to take advantage.

>"Vancouver couple exploits pandemic by hoarding Lysol wipes and charging double to resell them."

aren't they doing a public service here? I grew up in the shortage driven economy of USSR and have the hate to speculators and price gouging ingrained into my brain with the milk of the mother, yet hear me out - the consumption of the Lysol wipes has increased while the production stays pretty much the same, and the producer and big distributors and retailers aren't willing to increase the price while the price increase is really necessary to adjust/optimize for the new equilibrium between the new increased consumption and the same production levels, otherwise there will be shortages - similar to CAP theorem you can have either price control or availability (in my experience USSR with price control and total shortages and later, in 199x, Russia with freed prices and immediate availability of everything are direct experimental confirmation of that - you had to see how sausages and everything else magically appeared on Jan 1, 1992 in the just yesterday empty stores, granted it was 3x of the yesterday's fixed price, yet it was really available at that 3x price while yesterday at that nice 1x price it just wasn't there). Thus the price gougers like that couple de-facto do necessary job which the producers/distributors/retailers aren't willing to do.

Downvoters of this post are discouraging commenters who offer direct personal experience and fact-based arguments, just because they disagree. They should be ashamed.

From a political standpoint, I see the point. Price gouging makes people extremely mad, and it redirects goods from poor people to wealthy people. When tempers are already fraying and maintaining social order is already difficult because of an emergency, the last thing a government needs is a nucleus for lots of pissed-off people to rally around.

Remember that the first priority of any government is to keep itself in power. Governments that don't accomplish this are no longer governments. Efficiently allocating goods is a secondary consideration that helps them achieve this, but if doing so means they end up with a revolution or rebellion anyway, it wasn't very effective.

>it redirects goods from poor people to wealthy people.

In this case it's arguably something desirable, as the most at-risk group, the elderly, on average are much wealthier than young people. Someone over 80 is around 100x more likely to die from the virus than somebody under 40.

Think in terms of the survival of the government, not in terms of general social welfare. If you have a lot of pissed off poor young people, they're often fairly socially well-connected, they're more aggressive, they're able-bodied, and they can fight. If you have a lot of pissed off old people, they'll continue to be pissed off but probably won't make a whole lot of trouble. They might make a lot of trouble come election day, but in an emergency the priority is the survival of the government now, so that you can get to the next election.

This is not an academic thought exercise, BTW - a lot of the social unrest of 2019 in Venezuela, Chile, Hong Kong, Zimbabwe, Iraq, etc. came from prices rising quickly enough that young people could not afford basic necessities.

You’re overdoing the “priority of governments is to survive”-shtick. Any number of administrations have lost elections, for example. Very few tried to stay in power.

There is absolutely zero risk of a violent overthrow of the California state government right now. Even if politicians were as craven as you suggest, you have already noticed how lame your argument is with regards to age groups: old people have far more power on Election Day.

Pictures of empty shelves on social media is causing panic and driving more shortages. This is a lose-lose situation for gov interference. This sort of punitive response will always be far too late or too little to be effective anyway.

The markets will respond far faster with supply than setting price ceilings and fining random opportunists will.

So few people question whether it will actually work in the real world before asking if in an ideal scenario it is an effective idea.

I mean what’s going to happen next time? Are they going to lock up all the TP and ration it out on first signs of any sort of epidemic or other causes or panic? Because that’s when the hoarders and grey market guys were already stocking up.

The point is to serve as a disincentive to ordinary people thinking "Oh, I can make a lot of money doing that."

It crossed my mind, when news of the coronavirus first broke, that I could make a lot of money speculating in toilet paper, canned goods, rice, and beans in the near future. (I did all my prep shopping 3 weeks ago, but didn't buy more than we personally needed as a family.) I didn't because a.) a little voice in my head said "Do you really want to be that asshole?" and b.) it occurred to me that it was very likely that powers that be (governments and market platforms like Amazon) were going to crack down very hard on scalpers, and it was not worth going to jail for. Turns out I was right about that - people are not going to jail (in the U.S. at least, I heard they may be in Europe), but they're facing $5000 fines per item or eating the cost of buying & disposing of the items because Amazon revoked their seller license.

The point of highlighting laws like this is so that people aren't tempted next time there's emergency to do the same thing.

Letting supply and demand determine prices doesn't necessarily redirect goods from poor people to wealthy people; it redirects goods towards those that actually need them, because those people are willing to pay the higher price. If we're talking about someone living paycheck to paycheck who really can't afford toilet paper being 2x more expensive, they may have to use a substitute, but with price ceilings the shelves will be empty anyway.

When it comes to daily essentials like housing, food, medicine, and toilet paper, everybody needs them - that's why they're called "essential". When you have a good that everyone needs, the market-clearing price becomes a function of ability to pay, not willingness to pay.

Toilet paper isn't an essential (as a lot of us are now finding out). Also nobody really needs to hoard like 50 packages of toilet paper, and if prices were allowed to increase to reflect demand then people would be less incentivized to hoard. The same goes for real essentials like food and medicine: letting prices rise keeps people from hoarding needlessly, and it incentivizes producers to increase supply. I'm not saying we should let people starve, but price ceilings are just going to cause shortages of essentials anyway.

Here’s some price gouging:

https://www.nytimes.com/2020/03/14/technology/coronavirus-pu...

Banning that is not going to have any effect on production.

The economics only works out for rational actors. People are temporarily acting irrational. Desire to gouge and fear of being gouged are causing a run on goods because people are in a panic. Hopefully this will stem temporary silliness.

And this is an order on gouging, not price fixing.

Exactly: https://www.econtalk.org/munger-on-price-gouging/

Two problems; factories cannot surge up immediately and all of the actual gouging here is not actually making it to the manufacturers, it's people mass buying out stocks and reselling. So the supply side isn't actually seeing any increased price to increase their supply. The Econ 101 pro price gouging logic breaks down here because of that.

> Two problems; factories cannot surge up immediately and all of the actual gouging here is not actually making it to the manufacturers, it's people mass buying out stocks and reselling. So the supply side isn't actually seeing any increased price to increase their supply. The Econ 101 pro price gouging logic breaks down here because of that.

This may be due to the fact that the retailers are heavily threatened by government action, so they take no action to increase prices.

Contrast this with the must-have Christmas toy, which may otherwise be seeing similar unanticipated demand and suddenly the same retailers are incredible pricing experts.

The factories will need to maintain long-term relationships with these retailers and they may also have similar threats from government action.

More likely is that whatever slack there is in the supply chain will be exported to countries which have no such price control policies, because price-control policies do not address the underlying issues of supply and demand.

Some items like toilet paper have and extremely flat demand pattern it turns out, so plants are already running basically at capacity 24/7 so there's not much actual slack in the supply chain to increase.

https://www.latimes.com/business/story/2020-03-14/coronaviru...

> factories cannot surge up immediately

Really? How about longer shifts, double shifts, weekend shifts? If you could suddenly make twice the profit on your product you would figure that out pretty quick! If you can't make any extra profit, why bother?

I think governments would rather that people that get it first have access than the peoplwnehat can't afford it. If you're going to have to essentially have some people not get supplies, basing it off of wealth and income is not politically optimal

If we look at who it's most dangerous too, elderly people, then basing it off wealth would actually be in their favour compared to basing it off who can get to stores quicker to hoard it.

That's an inefficient proxy - there are plenty of poor elderly people (note that elderly people are often retired) and rich young people. If we're going to say anything other than "The people with the most ability to pay should get the goods because they have the most ability to pay, in and of itself," then the free market is the wrong tool to use.

There are poor elderly people too. I think the best response in cases of true need like this is some sort of government intervention and rationing based on need as well as some sort of subsidy to make scaling production profitable. Politically the let the market decide ideology is utterly infeasible - not only are most politicians fundamentally good people that care about their constituents and simply aren't the type to stand by while there's a shortage, there's also the political consideration of how your relection chances will be impacted by attack ads detailing that time you stood by as an elderly individual saw a shelf stocked with purell but couldn't afford the gouged price who then went on to pass away due to the virus. Externalities might not be priced, but they can vote.

Having people line up around the block to be first when the pharmacy opens is perhaps politically optimal but it is not epidemiologically optimal. Except from the point of view of the virus.

Absolutely. And i think this pandemic is revealing the extent to which political optimality bis deviating from epidemiologic optimality, and the devastating consequences of that given that our politicians are constrained by politics. This has absolutely revealed a need for structural reform to make what's politically optimal and epidemiologically optimal line up, and considering how complex a challenge that is, that's a conversation to start sooner rather than later.

Price gouging laws are based on the idea of a totally inflexible supply. If it is not possible to alter the number of water bottles showing up in CVS every day, then an increase in prices would essentially be a big capital gains bonus for CVS because they just so happened to have some water sitting around. Now, even in this situation, you can justify why CVS should get to keep their capital gains: it would motivate them to keep more water around so that they could benefit more in the case of an emergency. So to really explain price gouging laws you have to add a second assumption, that the shelf or warehouse space allocated to emergency goods during peacetime can't change for some reason.

No, it ensures that companies (and individuals) won't increase the price unnecessarily just to profit additionally from something like a pandemic.

...by placing an artificial price ceiling that will ensure a shortage of goods.

In a pandemic, prices go up, rightly or wrongly, because there is an increased demand. This price scales as the difference between supply and demand grows, in order to decelerate how fast the shortage occurs relative to the speed of creating the good. The price ceiling just means the shortage happens immediately.

But what is the price ceiling in this case? I fail to understand this argument, as this doesn't regulate the price of manufacturing a good but rather then price of its sale. If manufacturers aren't the ones setting the high prices then why would they be disincentivized to make more goods?

Distribution is also a cost. Imagine a hurricane where roads are damaged and supplies can't be brought it. If incentives are high enough people will urgently find a way to get it in to sell things people want

If prices are fixed, they may just wait until the normal trucks can make a delivery.

Because you shouldn't look with an econ lens. It's the same reason charging a ton for insulin is bad for society.

Econ lenses can be quite useful, but econ 101 ones rarely are in a context like this - it's the econ equivalent of they physics "assume a friction-less spherical cow in a vacuum"; i.e. ignoring some of the things that make this an interesting real world problem, doing X should mean Y. Except it doesn't, for all the reasons you assumed away.

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