It seems odd that Buffett and the WSJ would call this price gouging. There are high prices brought about by low supply and high demand. Sounds like Econ 101 to me. Am I missing something?
This simply does not apply to an investor conference. There is plenty of advanced notice for people to plan accordingly (perhaps even -- gasp -- invest in more hotels if they are raking in so much dough).
It seems pretty simple to me. There's a demand curve for the conference, which determines the ideal total conference price (which sells out the conference just barely). If people spend less money on hotels, that leaves more money for the airlines and the conference ticket price. It won't actually go back to the attendees, because that would create a shortage of tickets.
It seems like your example basically fits the real world one to a T. The investors are coming into town with their "empty gas cans" (i.e. need for a place to sleep) and the prices are jacked up accordingly until they leave town.
> This simply does not apply to an investor conference. There is plenty of advanced notice for people to plan accordingly (perhaps even -- gasp -- invest in more hotels if they are raking in so much dough).
Are you daft? Yeah, all the investors need to do is build a hotel in advance of the meeting! Or they could try alternative options, such as sleeping on the street, or in an airport.
Or not go to the conference. It's a business transaction: if the total price of the conference, including travel, is worth it, then go and be happy to reap the rewards. If it's not, then don't go, and they are no worse off. That calculation can be made before any other commitment is on the line, and certainly before they actually arrive in Omaha.
The motorist probably made a mistake or miscalculation that left him too far from a gas station, which he didn't have any idea would happen when he woke up that morning. He had to make a choice of which direction to walk and he was in for a couple miles of walking, so he could not easily see the price (much less comparison shop) until he had already walked a long distance.
The scenarios are as different as night and day. A high price is not "gouging" (by any reasonable definition) unless there are some other factors involved.
I'm simply stunned that we are even discussing the idea that hotels are somehow exploiting travelling investors by raising the price by a known amount during known times.
My point is that I don't think there's anything nefarious going on. Demand is high, so the hotels raise their rates. And the high demand is predictable because it's due to a scheduled event. Presumably, the existence of AirBnB will cause the rates to go down somewhat.
The situation is like a prisoners dilemma for hotels. If they all raise prices and none of them break rank in price, then they all make more money. BTW, just by pointing out the option of Airbnb, Buffet makes it more likely for a given hotel to break rank in a collective price bump.
Another way for Buffet to break gouging might be to publicly announce the price spikes as something driving consideration of future alternates for his meeting. But his past behavior makes that unlikely given that he would likely have to shift to areas with larger travel markets so as not to be a large percentage of the existing travel capacity of the locale.
A prisoner's dilemma situation requires good outcome if everyone colludes, and a terrible outcome for all if even a single prisoner defects. I don't see a terrible outcome for all if one hotel greatly reduces their price.
No, that would be collusion. They would be running a cartel and that would be illegal.
Worse, your speculation that Buffet is doing this to get hotels 'to break rank' is absurd. Metropolitan Omaha has ~10,000 hotel rooms (source - http://www.visitomaha.com/meetings/faqs/#.U0R2_61dUnI) compared to the 30,000 people who plan to visit _just_ for the shareholder's meeting. There is far more demand than there is supply of rooms, this is simply a rational response to that.
Nope, this is exactly what would be predicted by Econ 101: Microeconomics. The demand curve during the shareholders' retreat is shifted up/out relative to a normal one during other weekends, leading to higher prices even given no change to the supply curve.
This is really just competition, with the possibility of collusion, which is very much Econ 101.
If there are 1000 hotels on the market for a certain weekend in month X. Those hotels will see people search for and book a room. Initially those rooms will go for a very low rate. As the date nears, demand will increase and the price of the remaining stock will rise, so that the few rooms that remain as the weekend nears are made available at really high prices.
However if there are 1000 rooms and the hotels know the specific weekend and the nature of the people that will require the use of those rooms and they proactively price all those rooms at very high rates prior to even experiencing the demand, that is price gouging.
They squall like babies when it works against them, however.
And, this will only work until the hotel goes out of business. Then the AirBnB crowd will lift their rates, as well.