Price gouging seems like a rotten thing to do. There isn’t much written about it from a philosophic perspective, but most philosophers I’ve talked to think it’s a fairly nasty practice. President Bush thinks it’s morally analagous to looting. And it’s illegal in most states. Here in California, for instance, if in the wake of an earthquake I were to sell bags of ice which I normally sold for $2.00 per bag for $2.20 per bag or more, I would be guilty of a criminal offense punishable by up to one year in prison and a $10,000 fine. Yikes.
But what’s so bad about price gouging, anyway? It’s usually a consensual exchange. And not even the kind of questionably consensual exchange involved in, say, sweatshops. No one ever charges that gouged buyers are lacking relevant information or acting irrationally in some way. People in Florida in the wake of Hurrican Wilma were willing to pay $900 for generators because they needed generators, not because they were tricked in some way.
But maybe that’s just the point. Gouging victims often need the items they’re buying. And gougers know this. And they jack up their prices to take advantage of that need. That looks an awful lot like exploitation, and that seems wrong.
I’m not so sure, though. Consider the following points.
(1) If it’s exploitataion, it’s still mutually beneficial exploitation. People who buy generators at $900 a piece are benefitting from the transaction, relative to a baseline of no exchange. The gougers benefit too, of course, and maybe more than we think they ought to. But still, the gougers are doing something to make the disaster victims better off. And what did you, gentle reader, do to help the victims of Hurricane Wilma? If you’re like me, you did nothing. Are we morally guilty? We don’t draw anything like the heat that price gougers do. But it’s hard to see how a gouger who does something to make disaster victims better off can be worse than someone else who does nothing. A puzzle.
(2) There’s a lot to be said for allowing prices to adjust freely in response to changes in supply and demand. A lot to be said morally, even — not just in some cold-hearted economist’s sense of ‘efficiency.’ Prices provide a way of rationing scarce goods in a world of very un-scarce demands. If you’ve got a truckload of ice and a city of people with no power, you’re going to have some people in your line who want ice to keep their beer cold, and some who want it to keep their insulin cold. Selling it for $2 per bag probably isn’t going to get the former to step out of line. Selling it for $12 a bag might.
(3) Moreover, rising prices don’t just serve as a rationing mechanism, they also, as Hayek has pointed out, serve as a signalling mechanism. Rising prices for generators in Dade County send a signal that Dade County needs generators – and that there’s a hefty profit to be made in getting them there. The $900 price tag thus serves as a signal for people to buy generators for $500 in North Carolina and bring them to where they’re needed. As more people do this, the supply of generators in Florida moves closer to demand, the price of those generators moves down, and a new equilibrium is approximated. The lesson: price gouging is not just a static event, it’s part of a larger dynamic market process.
So what’s the problem? As far as I can tell, no philosopher has written either directly criticzing (or defending) price gouging. The ideas here are from a paper I’m working on, currently for submission to the Pacific APA. Have I missed some obvious arguments against the practice? Or does anyone know of some decent literature directly on the topic — by philosophers, that is. There’s lots of good material out there from lawyers and economists.
44 Replies to “What’s Wrong With Price Gouging?”
Matt, I think it’s clear what is wrong with price gouging, so the real question is whether there are good replies to your points in favor of it.
(1) If the people selling generators were already in town, selling generators, and just raised their prices, then they aren’t changing their behavior to make the disaster victims better off. If they decided to enter the generator biz as soon as they heard, then I agree that’s not such a bad thing to do.
(2) It’s one question whether ‘prices should be allowed to adjust freely’, and another whether someone who exploits that freedom is doing anything bad. Plainly both could be true, just as people ought to be allowed to say vile things in public.
(3) I figure no signal from prices was needed: people in North Carolina could certainly have seen video of the disaster in Florida.
(1) If the people selling generators were already in town, selling generators, and just raised their prices, then they aren’t changing their behavior to make the disaster victims better off. If they decided to enter the generator biz as soon as they heard, then I agree that’s not such a bad thing to do.
So, if I purchase the generators at their pre-disaster price (which, according to you, the seller is ethically (legally?) bound to charge me, then it is ok if I turn around and resell the generators at a substantially higher price?
Can we not say (I’m going to remain neutral as regards what metaethical framework this would be under) there are some acts which are considered wrong not perhaps because they are wrong-in-themselves (that is, they have an identical structure to acts which are not wrong-in-themselves) but which are wrong because they evidence a bad moral character; antisocial traits.
Suppose, for example I am an absolute sceptic about animal rights. I could still object to someone burning a cat nor because their act is significantly different from burning any non-human object (if this is too objectionable to you, substitute tree for cat) but because their action demonstrates a deviation from normally anticipated patterns of sympathetic responses which, one might think reasonable to assume would count as evidence that they might be morally deficient in other, more significant capacities – the anticipation of wrong-in-themselves acts to come.
So, in this instance we say price gouging IS wrong, not in so far as it is formally distinct from normal economic transactions, but the kind of indifference it demonstrates towards the well-being of the other parties involved in the transaction (you only make such a substantial profit BECAUSE of the very bad luck they have been subject to) your act deviates too far from anticipated standards of sympathetic responses and thus we might reasonably think evidences a poor moral character on your part.
As for whether law should capture this… I’m not sure. There are clearly pragmatic, conflict avoiding reasons to ban price-gouging. It seems reasonable to me, and not, I think, in conflict with what I’ve said above, to say that /minor/ price-gouging such as the raise from $2 to $2.20 would be /morally/ (we wouldn’t think too ill of you) acceptable but still outlawed by the legal device we’ve put in place (laws by their nature have to be somewhat arbitrary).
the gougers are doing something to make the disaster victims better off
Gougers don’t do something to — i.e., in order to — make the victims better off. Rather, they’re motivated by greed. They do, however, engage in an exploitative economic transaction that makes the victims better off than they would have been in the absence of any such transaction.
So the puzzle needs to be restated as that of explaining how someone ‘who does something that makes disaster victims better off can be worse than someone else who does nothing’.
Stated as such, it’s much less puzzling. Price gougers are greedy exploiters of the misery of their victims rather than altruists who are trying to make their lives go better. Those of us who do nothing are indifferent to their fate. Such indifference is far from morally admirable. But it shouldn’t be hard to see how active exploitation of, rather than passive indifference to, the desperation of others might make one a worse person.
If the water supply is cut off by a natural disaster and merchants start selling the too-limited supply of bottled water for $30 rather than $3 a piece, that will make it more likely that every bottle goes only to someone who needs it rather than to anyone who doesn’t, if we assume that the alternative is business as usual, in which case those who can afford will hoard more than they need at the regular price. The big downside to price gouging, however, is that it renders peoples’ opportunity to acquire this necessity much less equal, since it will price the poor out of the market. It would be better for merchants to ration things, e.g., by limiting purchases to one bottle per customer.
Re (3): What Jamie said.
One final thing: Bush didn’t say that price gouging was morally analogous to looting. Rather, he said that there should be zero tolerance for each. (One can say that we should have zero tolerance, e.g., for all violent crimes without being committed to the claim that muggings are morally analogous to murder.)
A bit more on (3): As you also mention, Matt, high prices don’t just signal unmet demand (which, as Jamie notes, CNN video footage can signal just as effectively). They also signal that there’s money to be made, which will motivate private individuals to supply the goods, thereby meeting demand and eventually bringing prices back down. If, however, one thinks the state should step in and provide disaster relief rather than wait for the market to sort things out, then all one needs is the CNN video feed.
Everyone is being pretty unsympathetic to Matt here and I agree with Jamie’s point that we have to distinguish the issue of what is wrong with a practice with the isse of whether we should allow it. But I guess I have trouble figuring out when gouging is gouging and that makes me think that it isn’t as easy as some people (Bush?) think to distinguish price gouging from ordinary market behavior. The most recent usage of the phase that I recall had to do with gas prices going up last summer. People then used the phrase to refer to raising prices on gas when something constricts the demand in ways that the going price goes up, and the current holders of the gas bought it at the old (lower) wholesale market price.
I can’t tell if that counts as gouging. Very few of us actually need the gas, though we might want it very badly and might want to pay a good bit to get it if there is no other way to do so. So the market price moves up. Clearly the sellers who bought at the old wholesale price get a windfall on the gas they bought if they sell at the new price. But it is also true that to replace that gas they would have to pay more than they did, and if they are in the business of selling gas they likely will have to do that to stay in business. It isn’t obvious to me that the baseline for determining a selling price ought to be what you paid for the particular thing you are selling rather than what it would cost you to replace it.
My response is not necessarily that price gouging is hunky dory. I think that the difficulty of drawing such a line might instead work to show that ordinary market transactions don’t have the benign status people sometimes think they do. I also kind of suspect that the status of such behavior depends in part on what we are price gouging with respect to. If it is life-saving stuff, we probably should think it is morally wrong not to do what we can to help with as little cost to the people in harm’s way as possible. If instead the commodity is a luxury that happens to be in high demand and the supply happens to have been constricted, I’m not sure what to complain about.
Oh, I get it. No, I meant that it’s ok (I said “not such a bad thing”, but if you prefer “ok” I’m ok with that) if you’re doing something that makes the victims better off, e.g. bringing in generators from North Carolina. I assume you’re thinking of someone who just grabs up generators that are already available in south Florida and turns them over at a profit.
I like the “(legally?)” that you injected, by the way. That’s a good lawyer’s trick.
In thinking about disaster cases, it strikes me that a lot of ordinary standards governing transactions don’t necessarily apply. What would normally be supererogatory might be obligatory. So regarding 1, perhaps it’s not enough to simply engage in a mutually beneficial transaction which greatly favors yourself, even though it’s normally ok. I do think someone who took this line would have to accept that our own inaction in times of crisis is suspect, but that’s not necessarily a horrible conclusion.
The empirical question on whether philosophers have written on this depends on what counts as a philosopher writing in defense of price gouging. If blog posts count, and if it counts as price gouging if someone charges more money for gas when it becomes scarce, after having bought it for a lot less money than the current price, then it’s certainly happened, with some of the points that you make (although I think the used comic book analogy is really what does it for me, so I consider that an argument in itself).
But I suspect you meant philosophers publishing papers in philosophical journals or in books published by academic publishers. You may well be right that no one has done that, but I wouldn’t be in a good position to know.
You write: “But it’s hard to see how a gouger who does something to make disaster victims better off can be worse than someone else who does nothing. A puzzle.”
And Mike Otsuka reformulated the puzzle in order to get rid of the implication that the gougers were motivated by helping others rather than themselves: “So the puzzle needs to be restated as that of explaining how someone ‘who does something that makes disaster victims better off can be worse than someone else who does nothing’.”
You might explore Ayn Rand’s work, particularly *The Virtue of Selfishness*. She has discussed the puzzle that Mike and you described. According to Rand, altruism, the moral code she maintained most people accept, does not merely mean that you should help others but that you should sacrifice yourself to others – where by sacrifice she meant that you should harm or undermine your own self-interest in your helping of others. The moral worthiness of an action, then, is gauged not by how much you help other people, but by how much you sacrificed your self-interest in helping other people. So, regarding your puzzle, it makes sense from the framework of altruism as Rand understood the code that you would disapprove of the gougers more than of the indifferent people, because the gougers benefited from their actions, while the indifferent people didn’t (since they didn’t do anything). (Incidentally, Rand mentioned this puzzle in her lecture “The Sanction of the Victims” at the Ford Fall horum in 1982 as an indictment of the morality of altruism: that altruists don’t actually care about whether people are helped; they only care if you harm or undermine your self-interest while trying to help thers.)
Thanks for all the great responses so far. The comments are bringing out some nice distinctions which I glided over in my original post, but which are undoubtedly important. Here are a few thoughts.
(1) Acts and Laws: I agree with Jamie that it’s crucially important to distinguish between the morality of an act and the morality of a law prohibiting such acts. My own thinking is that the case against laws against price gouging is close to a slam dunk. That’s something I cover in the longer paper, but for this post I wanted to focus on what I took to be the more philosophically challenging issue of the morality of individual acts of price gouging.
(2) Acts and Character: Duncan raises a tough issue here. On the one hand, I’m generally sympathetic to the idea that there can be morally permissible actions which nevertheless demonstrate a deficiency in character, and this line of reasoning has a good solid pedigree going back to at least Kant and Mill. So I’m open in principle to the idea that price gouging, while itself a morally unobjectionable (or at least permissible) act, is the kind of thing that only rotten people do.
On the other hand, there’s a bit of a puzzle here. If action A is morally permissible, then why should engaging in A reflect poorly on one’s character? I’m reminded of Nozick’s reflections on Kant’s thoughts about why we shouldn’t hurt animals – not because animals matter, but because it might lead us to hurt things that really matter, i.e. people. Nozick’s response was that this line of argument presupposes a certain ‘coarseness’ to character/dispositions – as though there is a fine distinction between hurting animals and hurting people such that once we start doing one, we’re likely to glide right over the distinction and start doing the other. His question in response to this struck me as exactly right: do butchers commit more violent acts against people than others? (more than others who work with knives?) In the case of gouging, I’m likewise dubious about the premise of this argument. If, as the argument seems to grant, price gouging is itself morally permissible, then what are the closely related but morally impermissible acts into which one fears price gouging will glide, and how likely is it that this will actually occur?
(3) Exploitation: Mike Otsuka reframed my puzzle in a way which seems to make it not so puzzling after all. Indifference, he says, bespeaks a less bad character than exploitation. And this seems to me exactly the line that defenders of the wrongness of mutually beneficial exploitation have to take – it’s the line that Ruth Sample takes in her book, for example. But it’s not so clearly right, either as a thesis about badness of character or wrongness of act. I’ve addressed the character issue a bit above, but the act of being indifferent to suffering does not seem clearly less wrong than the act of doing something to alleviate it while making a tidy profit for oneself. It certainly doesn’t seem less wrong on consequentialist grounds, and I don’t see how it’s less wrong on Kantian grounds either. After all, it’s not as though the gouger is using his buyers *merely* as means. He’s not stealing from them, or clubbing over the head. And we shouldn’t assume that he’s refraining from these actions merely on pragmatic grounds. He might genuinely view the buyer’s consent as morally significant, and a necessary condition for permissible exchange. He offers the buyer value for value, and doing so seems like a kind of respect for the value of the buyer herself.
(4) Prices as Signals: Mike Otsuka in his second post is right on this one. The key point about prices isn’t just that they convey information, but that they convey information and provide an incentive to act upon that information. I see lots of disasters on CNN, just like Jamie says. But I don’t do anything about most of them. My guess is that the prospect of profit is much more reliable as a spur to action than whatever sympathy television images might evoke. And I also suspect, contra Otsuka, that they’re much more reliable than a reliance on the good will or even basic competence of government agencies. Passing a law that says governments ought to relieve disasters doesn’t entail that governments are going to relieve disasters. The government had a legal obligation to do more than it did in the case of Hurricane Katrina. Given that it didn’t do so, I think the existence of a market for needed goods was probably a very good thing.
(5) The Concept of Gouging: Finally, Mark is quite right that aside from the tricky normative questions, there are some difficult conceptual questions to be asked regarding price gouging. The law isn’t the final answer on questions of conceptual analysis, of course, but I’ve done a survey of most of the state statutes on gouging, and I think those statutes do give us a starting point in thinking about what most people mean when they talk about gouging. For starters, most statutes define gouging in such a way as to limit it to actions which occur in the wake of a disaster or emergency of some kind. Second, they limit the class of goods to which they apply to goods that are related to the disaster in some lose way – necessary for survival or ‘comfort’ (that second one sort of gives the game away). I think Mark is right to conclude that our moral evaluation of gouging out to vary depending on the kind of good on which one is being gouged. There’s at least a prima facie case to be made that gouging on life-saving goods is morally wrong. I don’t think there’s even a prima facie case to be made with regard to items that are necessary solely for comfort, though I suppose it might depend on how broadly that latter concept is defined. If an electromagnetic storm comes and wipes out everybody’s HDTVs except mine, I’m entitled to charge whatever I want for them. Or anyway, it seems like one has to draw some kind of distinction like this unless one wants to challenge not just the morality of isolated exchanges in the wake of disaster, but the morality of market exchanges more generally.
Regarding Matt’s point three above, there are good Kantian reasons to worry that the gouger does, in fact treat her customer as a mere means to her own ends. While she does not steal from the customer nor club him over the head, a natural disaster can undermine the possibility of morally meaningful dissent from an agreement that exists under normal market conditions. Under these typical conditions, I might shop around for the best deal on electrical generators, insulin, or food in order to make a rational choice as a consumer. However, a disaster might make a need much more pressing than normal (as when electricity is out or stocks of necessary goods are destroyed) or eliminate competitors (as when spikes in demand and loss of supply create monopoly conditions for sellers). In these conditions, the consent of the customer, when the good is necessary to her survival or basic well-being, can be suspect. Imagine, for example, that Joe offers to rescue Jim from an avalanche in exchange for half of Jim’s future earnings. Jim might rationally accept this bargain if Jim is his sole hope for rescue, but we might question whether this is morally meaningful consent given that no reasonable possibility of dissent exists. Similarly, the lack of opportunities for meaningful dissent from the terms of exchange in a natural disaster can undermine consent. That is, the ‘take it or leave it’ offer of a merchant following a natural disaster can be more similar Joe’s offer than to the ‘take it or leave it’ of a merchant under normal market conditions. If this is right, then price gouging laws are most reasonable when they are tied to ‘necessary’ goods, as is typically the case.
…the prospect of profit is much more reliable as a spur to action … than a reliance on the good will or even basic competence of government agencies. …The government had a legal obligation to do more than it did in the case of Hurricane Katrina. Given that it didn’t do so, I think the existence of a market for needed goods was probably a very good thing.
(1) Those who couldn’t afford to flee when Katrina struck didn’t constitute much of a market, because they had hardly any money to buy things, especially at inflated prices.
(2) One can’t draw general lessons about the competence of governments to provide disaster relief from the extraordinary incompetence and indifference of the Bush administration’s response to Katrina. Not even the Bush administration has managed to display such incompetence and indifference on other occasions, such as the following, when natural disaster threatened:
I like what Jeremy and Mark vR had to say earlier: Whether we think a market transaction counts as ‘fair dealing’ or is instead wrongfully coercive or exploitative depends on the goods involved, the availability of alternative transactions, etc. That gouging is in a broad sense ‘consensual’, as Matt had it in his initial post, is *one* reason to think it defensible, but it hardly exhausts the question.
I wonder about some other theoretical perspectives: Could utilitarians argue that the marginal utility gougers gain is outweighed by the marginal disutility suffered by those who pay gougers’ prices? I’m thinking of situations where I might pay a gouger huge amounts for, say, water, thereby draining my kids’ college fund or preventing me from paying for medicine for my chronic medical condition.
And what about a contractualist/contractarian argument: Could anyone reasonably reject a principle of non-gouging in disaster conditions — and would we endorse such a principle in a Rawlsian original position?
I know that this won’t be very theoretical or constructive but this is one case where I would like to refer to the Golden Rule. I know there is a lot of wrong with it and Parfit does some great work with how to get a formulation of it that can stand scrutiny. He also connects it nicely to Kantian ethics.
In any case, what the Golden Rule essentially guides us to is some sort of role play. There I am in the wake of the disaster, having lost everything, uncertain about the future, and I’m hungry and thirsty. *And then*, some guy comes up selling a bottle of water for £30 which I cannot afford to pay (this actually happened in the UK floods this summer – not for me happily). How would you feel like? See isn’t that wrong?!
I know this isn’t much of an argument or an explanation of why it is wrong. But, for once, I’m happy to go with some sort of direct moral sensitivity to the wrongness of it. Maybe it’s all emotive but I’m still Boo(that)!
On a more constructive note, I’m not sure what the puzzle is here:
“On the other hand, there’s a bit of a puzzle here. If action A is morally permissible, then why should engaging in A reflect poorly on one’s character?”
I take it that there are often a lot of permissible options and each of them can be done from a variety of different motives. The motives we act out of when we do morally permissible actions express what we care about and what we do not care about. And, we ground our assessments of character mainly on what we take others to care about. Price gouging reveals that the person cares about money and profit and does not care about other people and their misery. I know some people would take these to be positive character traits but for many they are not.
Most of the views critical of price gouging seem to suggest there is something morally wrong with charging the gouging price, with the tacit assumption (I take it) that only the ordinary market price somehow isn’t reflective of “greed” or some sort of disposition to treat others as ends and not mere means. Why would that be? What moral magic might market prices possess that they would perform this moral transformation? Ordinary market prices (at least when left unperturbed) reflect some sort of balance struck between supply and demand, given all the contingencies bearing on the production of the supply and the uses of the demand. How is that same story not true of the gouging price? True, the movement of prices is faster than it normally is. How does that make a moral difference? Suppliers are normally in it for the money in the first place. They don’t sell the goods they sell out of altruistic motives. Nor is there any clear case that I can see — on any normative approach — that demands that they should. Why is that different in an emergency that allows for gouging?
In fact, if the real issue is a duty of mutual aid that the emergency invokes, how is selling at the normal price not problematic? If the poor need water, how is selling it at ordinary market price not problematic in just the same way (though perhaps to a lesser degree) as gouging? Wouldn’t the real moral requirement be to give the necessary goods away? And is our condemnation of the gouger just a greater degree of our condemnation of people selling necessities at ordinary prices? I think the ordinary intuitions condemning gouging here are nearly incoherent.
It seems also that the issue is being considered in an odd sort of isolation. It isn’t just consequentialists who can ask about the moral significance, not just of the act considered in isolation, but of practices in general. They matter on any plausible view about how to conduct ourselves cooperatively and socially. Michael Otsuka claims that one can’t draw general conclusions about the behavior of government from the Bush administrations actions in Katrina, in response to its responses in Florida earlier. I’d think that is precisely evidence for a general conclusion: governments don’t respond to emergent needs as anything except as a matter of political exigency. It would be nice to think otherwise, but in fact policies to meet such needs are, like all matters of government conduct, deeply influenced by the incentives at work on those who have to develop those policies. That’s as general a lesson as we can get. Seen in that light, both the expectations we should have of institutions beholden to political will, and of individuals out to make a buck when there’s a buck to be made, have to figure into the norms we think we should respond to morally when acting cooperatively.
with the tacit assumption (I take it) that only the ordinary market price somehow isn’t reflective of “greed” or some sort of disposition to treat others as ends and not mere means.
My central complaint against price gougers is that they’re exploiters. I certainly don’t believe that the ordinary market price is never exploitative, since I think the ordinary market price for sweatshop labor is an exploitative wage. But in ordinary circumstances the transactions that grocery store owners make with their customers are not exploitative. Perhaps grocery store owners really ought, for humanitarian reasons, to give away their supply of water for free when a hurricane strikes. But carrying on as before and continuing to sell bottled water at the very same price that was non-exploitative in ordinary circumstances does not become exploitative post-hurricane, since, by refraining from modifying their behavior, they’re not taking advantage of the now dire circumstances of their customers. It is pretty clear, however, that merchants exploit their customers when they mark up the price of their bottled water by 1,000 percent because their desperation will impel them to pay this much in a natural disaster.
Where’s the incoherence in this set of attitudes?
governments don’t respond to emergent needs as anything except as a matter of political exigency
We can certainly draw this general lesson about the Bush administration. But one can’t generalize from the Bush/Rove way to all governments. There is, for example, a huge difference between the Lyndon Johnson and the George W. Bush administrations when it comes to responsiveness to people’s needs.
I guess I’d be astonished at the supposition that Johnson wasn’t responding to political incentives just as Bush does, to begin. If what we are after is moral judgments about the motives of agents — again, governmental or private — the fact that the consequences are less offensive (and, across the board, that’s at least arguable) doesn’t change the fact that Johnson thought he could get and keep political power by doing what he did. It’s hard to imagine him having thought otherwise. Not that there’s not plenty to object to morally in the way the Bush administration conducts policies. But the point that government agents respond to incentives — in this case political incentives — every bit as much as private agents can’t just be wished away.
Ordinary merchants charge what they think the market will bear. The claim that gougers are exploitative just moves the problem back one step. How is it that gougers are motivated in some different way than are merchants in the ordinary course of events? True, in the emergency the market will bear higher prices. But in all events it seems they are motivated by profit. What changes? If the point is that there is greater need in the emergency, then again it seems like the claim is that beneficence is required, not sales at some price point established under conditions that have ceased to obtain.
I suppose the question comes back to something like Matt’s original one: where, exactly, is the problem? Is it in the outcomes? Gouging pulls a lot of money right where it is needed — into the supply chain for critically needed goods. Is it in the motives of the agents? Hard to see how that differs. Naming the difference as one of “exploitation” makes a normative judgment about the different cases without explaining where that difference lies.
. . .the fact that Johnson thought he could get and keep political power by doing what he did. It’s hard to imagine him having thought otherwise. . .
Johnson was a rascal in many ways, but there seems to be lots of evidence that he pushed through civil rights legislation despite thinking that it ceded electoral dominance of the South to Republicans. So I have a relatively easy time imagining him doing something because he thought it was right as opposed to solely because of the thought it would lead to electoral advantage.
Mike O’s original point seems worth hanging onto even if you aren’t like me and you don’t think Bush is the most corrupt and despicable human being to ever occupy the White House. That’s just because one administration does not make a very good induction base and we have some evidence that people don’t act only for narrow economic or political advantage.
Michael Otsuka writes: “Price gougers are greedy exploiters of the misery of their victims rather than altruists who are trying to make their lives go better. Those of us who do nothing are indifferent to their fate. Such indifference is far from morally admirable. But it shouldn’t be hard to see how active exploitation of, rather than passive indifference to, the desperation of others might make one a worse person.”
Leaving aside the qualities of a person/qualities of an act distinction discussed above, I am curious about Michael’s claim that “Those of us who do nothing are indifferent to their fate.” Maybe, but maybe not. Many people who do nothing to help others in catastrophic circumstances are not indifferent to the fate of those others. They care, and want those others not to suffer. They just aren’t sufficiently moved to help those others or to do things that will end up helping those others.
In many cases, the relevant comparison may be between:
1 – those who don’t care at all about suffering others and are thus not moved to do anything to help them (true passive indifference).
2 – those who do care but are not moved to take any helpful action (where “helpful action” is neutral between the various motives for that action)
3- those who do not care but are moved by self-interested considerations to take actions that they expect will benefit themselves and the suffering others (some gougers in this category)
4 – those who do care but are moved only by self-interested considerations to take helpful actions (some gougers in this category)
5 – those who do care and are moved by their care for others to take helpful actions.
How would we rank these categories in terms of moral admirability? I think most would say that category 5 is the best. Wouldn’t most people also say that category 1 is the worst? Not only do category 1 people (“1s”) fail to do anything that will be good for the suffering others, they don’t even care.
I don’t think many people fall into this category. Most of us care, at least a little, about the suffering of others. If we don’t think there are many 1s around, then we are probably committed to the view that there are not many 3s around, since the 3s share the odd trait of the 1s of not caring about the suffering of others.
Michael seems to think the relevant comparison is between 2s and 3s. But if there are not many 3s, perhaps most gougers are 4s. That is, we can see most gougers not as moral monsters devoid of any compassion, but as ordinary folks who care about others but, like most ordinary folks, are too infrequently moved by considerations other than self-interest to help suffering others.
Characterized this way, why should we see 4s as worse than 2s? Or, in other words, if we assume parity of concern for others between those who do nothing and those who price-gouge, are the price gougers really “worse people”?
I think the following is a good point:
“Most of the views critical of price gouging seem to suggest there is something morally wrong with charging the gouging price, with the tacit assumption (I take it) that only the ordinary market price somehow isn’t reflective of “greed” or some sort of disposition to treat others as ends and not mere means. Why would that be? What moral magic might market prices possess that they would perform this moral transformation?”
I do think that you are partly right. In normal circumstances entrepreneurs are and should be motivated by greed and there is nothing wrong with it. The reason is that there are institutional checks that allow the greed to work in everyone’s advantage – laws against monopols, price fixing, and the like. These seem to fail in the disaster cases when gougers find room to raise prices. If there were competition amongst them and they were not fixing the prices, no one would buy the expensive stuff. Thus, in those circumstances, the mechanisms that make greed a good thing normally are missing.
Why isn’t selling at a normal price problematic? Well, if people can afford to buy stuff at normal price and they can, they are not in that big of an emergency in the first place. If they life depends on the goods and the disaster has destroyed all their resources, then they should be given the goods. And, government should later compensate to the sellers. I think this happened this summer here in UK.
“Naming the difference as one of “exploitation” makes a normative judgment about the different cases without explaining where that difference lies.”
Here is one difference. The goods that gougers are selling cost them as much as usually. They used to sell them for a certain margin of profit. Now they raise the margin because they realise that their customers are (via no fault of their own) in a much weaker bargaining position. They could still make the same profit as before instead. It’s not business as usual.
You’re assuming that price gougers ‘take helpful action’ in time of disaster. But that’s a controversial assumption on any good account of what it is to take helpful action. Here’s a reasonably good account: a price gouger takes helpful action just in case his raising his prices makes the victims of a disaster better off than they would have been if he had not acted. (Note that someone might count as helpful, on this understanding, even if he’s not moved by any desire to help anyone.)
It’s not at all clear that price gouging constitutes helpful action, so understood. Take the not-untypical case of someone who triples the price of his motel rooms during time of natural disaster. (Many of the complaints of price gouging in states that ban it are lodged against motel owners who do things like that.) How exactly does this owner help the victims of the disaster by tripling his rates? Granted, certain individuals are better off than they would have been if he hadn’t tripled his rates – e.g., a relatively well-off person for whom there’s a room available because someone poorer than he has been priced out of the market. But this gain to him will likely be more than offset by the loss to the poorer individual, who will be less likely, by virtue of his poverty, to fend for himself in other ways than the richer individual would have been.
Note also that it’s hard to justify price gouging on grounds of the beneficial effects of the signals it emits in this case, since it’s not as if there will be enough time to build more motels to meet this temporary spike in demand – nor would that make any obvious economic sense to do so even if there were enough time, given that these new rooms would soon go vacant once the crisis passed.
Note that all of the above is consistent with the assumption that every price gouged person is better off than he would have been in the absence of any economic transaction whatsoever. But that goes to show that it doesn’t follow from the fact that people are better off in this respect that price gougers take helpful action by raising their prices.
I think I can agree with Mark vR’s and Jussi’s comments in this way: I am happy to stipulate that greed is morally bad, even though its operation under at least some conditions may bring social benefit. That point is one thing supporting Jamie’s original argument that we should distinguish the moral judgments we want to make about price gouging from policy recommendations we might make about it. On that basis, we certainly have warrant to claim that price gouging is bad (at least, the motives for price gouging are bad) when it arises from greed. This is just a special case of a quite general moral judgment about the attitude of greed.
But that leaves us considerably short of a general condemnation of price gouging. Mark vR is right that political actors can act for all sorts of reasons. I think it is clear that the political process selects against those who don’t act out of political expediency to a sufficient degree, but that degree may allow for a good degree of slack, and we can imagine (or perhaps identify) cases in which really laudatory motives are at work in political action. Maybe Johnson’s motives for pushing civil rights are among them. I am less optimistic that his motives for pushing the Great Society are of the same ilk, but in any event the moral praise or blame he will deserve depends on what actually motivated him. Fair enough.
Why doesn’t that same argument apply to price gouging? Some people who gouge no doubt are motivated by greed, and we have the tools to condemn their attitudes and choices. But, crucially, the problem is their greed, not the gouging. Some people under ordinary market conditions may be conducting themselves out of greed as well, and they would (on those grounds anyway) be equally deserving of censure.
Michael Otsuka argues that the practice itself is exploitative. I take it that would be a helpful answer here if we had an account of exploitation that did two things simultaneously: (1) shows how price-gouging falls under its extension while (2) showing that in virtue of doing so it is morally objectionable, perhaps by showing that the parallels with other morally objectionable practices are stronger than the parallels with other morally unobjectionable practices. Or, we could just skip the middleman — the theory of exploitation — and cut to step (2) itself. The pointers to greed do just that, at least for cases in which price-gouging is motivated by greed. But that hardly seems like a general answer.
At any price point some (potential) buyers are going to be excluded. That’s true under normal conditions and true in conditions of emergency, which impose violent change on conditions of supply and demand. So much is common to both cases. And the motives for raising prices — raising them radically — may vary considerably. Some might think, for example: “If I raise the price per bottle of water from $1 each to $10 each, I can afford to FedEx in another shipment of water.” Or they might think: “This crisis will kill my failing business if I don’t do something significant to try to save it (and my employees’ jobs).” Or: “No way I am getting replacement inventory if I’m not in position to pay a significant premium.” That’s just to say: if motives are what concern us, it’s going to be just as difficult (and perhaps no more difficult) to support generalizations here as it is in other cases. Responsible moral judgment about the motives and actions of particular agents is going to require discernment. What gets the label of “price gouging” (the radical rise in prices) turns out to be, in itself, at least morally neutral.
“At least neutral,” I say, because the background is the empirical likelihood that doing so is economically efficient, so at least in that way socially salutary, so has a sort of consequentialist justification. We might not be happy with that. We might think that there is room for condemning some attitudes even if the consequences are good. We might also think that emergencies establish needs for beneficence beyond those ordinarily obtaining. All that fine, but it’s hard to see how the initial intuitions about the wrongness of the price-raising itself can be sustained.
Michael’s point about hotel rooms works, I think, the other way. In fact, as I recall, Walter Williams used this very example (whether anecdotal or not, I’m not sure). Instead of renting two rooms to put up his wife and family, the price forces somebody to rent one, leaving another free for others to use. (1) That’s just the sort of signal economists are talking about, (2) that benefits whoever gets that second room; it is certainly helpful to them, though not to the person who’d rather have two rooms than one. The economic point is that in gauging benefit, you have to look at the whole picture, not just what strikes you immediately. The rise in prices does price some people out of the market for goods, and just in that sense raises the demand for beneficence. But at the same time it also provides significant incentives for economizing — incentives that under ordinary conditions are not necessary nor appropriate in the same way — and there can be little doubt about the social benefit of such incentives.
Many of the arguments against price gouging that I am seeing here seem quite “portable”. For example: is it also morally objectionable, or “coarse”, etc., to patronize a store that is undergoing a “going out of business” or fire sale? The situation is the same as with price-gouging; special circumstances, perhaps even an emergency, have led to a dramatic change in prices; the only difference is that the prices have fallen, rather than risen, and it is the seller, rather than the buyer, who might be being exploited. Yet this seems totally unproblematic.
For example, suppose you are a rice farmer in eastern India. You are able to make a living doing this; the market price of rice is reasonably stable. Then, some benevolent Western country decides to send a large shipment of food aid to your state, with promises of more to come. This causes the price of rice to drop dramatically. You realize you have no chance of staying in business; you will lose your land. The only question is how much debt you will end up with. To mitigate this problem, you cut your prices by 75%, hoping that at least some people will prefer (for reasons of travel cost, nationalism, etc.) to buy your rice rather than stand in line for the free rice, and publicize this fact as widely as possible. Are your customers exploiting you by accepting your price, or are they obliged to pay the pre-“emergency” price?
Michael’s point about hotel rooms works, I think, the other way. … Instead of renting two rooms to put up his wife and family, the price [hike] forces somebody to rent one, leaving another free for others to use. …[T]hat benefits whoever gets that second room; it is certainly helpful to them, though not to the person who’d rather have two rooms than one.
A better solution to this problem than hiking their rates is for motel owners to adopt a practice of giving priority to those who will use their rooms to their full capacity when demand far outstrips supply in time of disaster.
It is probably true, as Michael O. argues, that some instances of price gouging don’t help anyone but the gouger. In these instances, we’d need to move beyond the five-way comparison I suggested above. But how frequent are cases like that? I do like Mark LeBar’s reply about the hotel room example.
Here’s another way of replying. Suppose that the hotel owner has to choose whether to stay and keep her hotel open or to flee the disaster area along with most of the other well-off folks. She decides to stay, but _only_ because she believes the extra risk is worth the extra profit she could make if she charges higher-than-normal rates. (For simplicity, I leave aside business considerations, like providing incentives to suppliers to enter the risky areas, that may lead to higher-than-normal rates.)
Here’s Michael’s account of “helpful”: “a price gouger takes helpful action just in case his raising his prices makes the victims of a disaster better off than they would have been if he had not [so] acted.”
On Michael’s conception of “helpful”, is the hotel owner doing something helpful? I think the answer is Yes. The hotel owner, by remaining in the risky area so as to reap higher-than-normal profits is doing something that benefits disaster victims: she increases the stock of available lodging. If she had not remained, those who would have used the rooms (or those who would have been displaced by those who would have used the rooms instead taking rooms at alternative hotels) would be worse off.
Again, all of this is simply in service of my reply to Michael’s point that the indifferent are less bad than the gougers. It may be true that the most morally admirable hotel owner will lay aside her self-interested considerations and remain open at her normal rates so as to provide help to others (this would be a “category 5” person, according to my previous message). But that does not speak to the relevant comparison between the gougers and the indifferent. On Michael’s initial argument, the hotel owner would be acting in a more morally admirable manner if she flees the disaster area out of self-interest rather than if she stays open and charges higher prices out of self-interest. I’m having trouble agreeing with that.
What Mike Otsuka said. Matt Wrote:
“If it’s exploitataion, it’s still mutually beneficial exploitation. People who buy generators at $900 a piece are benefitting from the transaction, relative to a baseline of no exchange.”
But why is the relevant baseline that of no exchange? Some price gougers are like ticket scalpers. If a scalper buys all the tickets to an event, a buyer will no longer be able to buy at the face price, but will have to pay whatever the scalper asks for a ticket. Note that the scarcity of supply at the face price is at least in part generated by the intervention of the scalper. This makes buyers in general worse off (even if it often makes some particular rich buyers better off by establishing a system of price-based allocation, as opposed to e.g. a lottery or a line).
Other price gougers are regular sellers who would have sold at the market price but for the opportunity the disaster affords them to raise prices. So the relevant exchange goes: “What did you do in response to Wilma?” -“I hiked up the prices on my generators to get a bigger profit”. This looks worse than doing nothing at all. If you make failure to sell at the regular price look like an *omission*, as Matt’s comparison does, it looks much less bad than if you see it as an *act* – of refusal to sell at the regular price. But many of these cases are intuitively better described in the latter way.
I don’t think Justin’s example of the risk-taking hotel owner is one of gouging at all, since the hypothetical hotel owner is shouldering a special burden by staying. This is no more gouging (in the moral sense) than it would be if a water seller during a drought increased prices as necessary to absorb the extra cost of transporting in water from further away.
I think that Justin W’s point makes it clear that some greater precision about when ‘price gouging’ is said to occur would be helpful. While common use of the term is very sloppy (as in any price increase, no matter its justification), in the law it is often connected to: 1) increases in the price of what are considered ‘necessary commodities’ including dwelling units, gasoline, food, water, supplies for home repair, and pharmaceuticals; and 2) increases that are ‘unconscionable’, ‘excessive’, or ‘exorbitant’ increases are forbidden. I understand these vague terms to condemn price increases that are not justified by changes in the cost of doing business or risk. If so, the hotelier would be justified in some increase in the price of his rooms without running afoul of a narrower understanding of price gouging. Someone who increases prices for necessary commodities beyond this point, however, would gouge. Of course, this distinction does not make the moral distinction clear, but I do believe it follows much common usage of the term, and certainly its usage in the law.
And, again, if someone is going to propose a more precise definition of when price gouging occurs, it would be even better if that definition applied equally to price decreases.
Interesting that in the case of the $900 generators which Matt linked to a the top of the blog, the law went after a guy who was not in the generator business, and who drove several hundred miles to buy a truckload of generators and return to Miami to sell them. Obviously, the state of Florida is doing its part to ensure that nobody has any economic incentive to provide such a service to their neighbors again. If (as Simon thinks) the risk-taking hotel owner isn’t price gouging, nor the buyer of clearance-sale rice (in asg’s intriguing example of things working the opposite way), was the generator opportunist?
Simon writes, “I don’t think Justin’s example of the risk-taking hotel owner is one of gouging at all, since the hypothetical hotel owner is shouldering a special burden by staying.” Perhaps. If so, then a lot of what is called “price gouging” _during_ catastrophes would probably not really be price gouging, since in order to stick around to sell goods or services at a very inflated price one must bear the “special burden of staying.”
Now suppose the disaster has passed and we are in the aftermath. In the aftermath, circumstances are still pretty dire. An entrepreneur is deciding whether to set up a shop in the affected areas selling needed goods at extra high prices, producing higher than normal profit margins. Since the disaster has passed, she would not be putting herself at risk. However, opening up this shop would interfere with her planned ski trip to the Andes. She has really been looking forward to this trip, and the only thing that she is possibly willing to derail it for is the prospects of boatloads of cash.
Here, no “special burden” would be shouldered by the would-be price gouger, and we can assume that Jeremy’s conditions of “needed goods” and “excessive price increases” would be met.
Is it really morally worse for the entrepreneur to set up the shop than to go on her ski trip?
Justin, *I* didn’t suggest there was generally a “special burden of staying”, and I doubt that there generally is such a burden in cases commonly called “price gouging” (or at least, none of sufficient weight to account for the price increase). It was you who hypothesized in your example that the hotel owner was taking some special “extra risk”. It’s surely uncontroversial that that is a burden.
To examine your latest example, is your entrepreneur like a ticket scalper, reducing the supply of low priced goods in the afflicted area buy buying and reselling at a high price? Then yes, her conduct is worse than if she went on a ski trip – she is making afflicted people worse off for profit, rather than merely ignoring their needs.
Is your entrepreneur someone who is making people in the afflicted area better off by bringing in goods from elsewhere (which wouldn’t otherwise be brought) and selling them locally, albeit at a high price? Then she is making things better for the buyers. This is the best case. BUT in at least some cases of this kind, her actions might still be impermissible price gouging and/or reflect bad character – consider someone who could sell wheat in a famine area and make a profit at a low price, saving thousands from starvation, but chooses to make a bigger profit by selling at a high price instead, and only saves hundreds. Even though taking a ski trip in this kind of case is probably equally impermissible, the price gouger may be correctly judged of worse character: this is a person who is unmoved by the suffering of others even when she is “up close” to it (Even if she doesn’t physically move to the area, her knowledge of the business ought to make her vividly aware of suffering that a virtuous character, with vivid awareness, would respond to.)
What if your entrepreneur was somebody who already ran a business in the afflicted area and chose to raise their prices without having a special burden to justify it? Then the relevant baseline changes. They will have *acted* to raise the price rather than merely *omitted* to offer a lower one, and we therefore understand their actions as making people worse off. We can explain this by treating the local entrepreneur as having a special responsibility for the local population through moral luck, so they are not permitted to do everything outside entrepreneurs might be permitted to do. It would be equally bad or worse for this entrepreneur to take a ski trip at this juncture, assuming it would make the local population worse off to close the business, but again, that might reflect less bad character than someone who stays up close to the suffering for quite a while to make a profit from it.
Thanks again to everyone for what’s been a very helpful discussion so far. I can’t hope to weigh in on everything important that’s been said, but here’s two quick points.
* The Golden Rule – Jussi invokes the Golden Rule against price gouging, and as simple as it is, I think this gets at the core of a lot of what we object to in the practice. We feel like we wouldn’t want to be treated in that way if we were desparate, and don’t like seeing others treated that way either. I think there’s something morally significant in this idea, but it’s crucial to realize that it doesn’t capture everything of moral significance. The problem with the Golden Rule, and it’s a problem common to many philosophical thought-experiment methods of thinking about morality, is that it is heavily biased in favor of what Bastiat called the seen over the unseen. We see the victim of price gouging not getting what they want, and this triggers our moral sympathy. What we don’t see, as Mark L. pointed out, is the broader economic context, and specifically the useful function that price gouging serves. If I asked myself whether I would want to be fired for doing incompetent work, my answer would probably be no. But I wouldn’t conclude from this that firing people who do incompetent work is morally wrong. The reason it’s not wrong, though, involves larger issues such a the values that a competitive economy serves, and the way in which firings and creative destruction more generally serve to promote such a competitive economy. But it’s precisely these larger issues which the Golden Rule filters out.
* Scalping – Simon thinks that price gougers are like ticket scalpers. I think that’s right, though I think that both perform useful arbitrage services, though not necessarily for morally admirable motives. I think it’s wrong, though, to believe as Simon does that “If a scalper buys all the tickets to an event, a buyer will no longer be able to buy at the face price, but will have to pay whatever the scalper asks for a ticket…This makes buyers in general worse off,” or at least to think that this argument carries over to the case of price gouging. If A is selling X, and B buys up all of A’s stock of X, then it’s true that consumers C now have to buy their Xs from B rather than A, and that they will have to pay whatever B asks (or not buy Xs at all). But how does this make them worse off? How is having to pay whatever B asks worse than having to pay whatever A asks? In the case of ticket scalping, it might be that normal vendors are prohibited from charging the market clearing price, and so any C’s who had the time to stand in line for a ticket but not the money to pay the market clearing price would be made worse off by the transfer of X from A to B. But this seems a special oddity in the market for tickets, and not something that carries over very well to the normal case of price gouging.
Asg’s examples are excellent, but I don’t think they are totally unproblematic. Some of us do think that if we can, we are obliged to pay more than we strictly have to for e.g. fair trade coffee, or non-sweatshop made clothing, so as not to take unfair advantage of others.
In general our buyings are actings, and so we are like the entrepreneur from outside who has no special responsibility and makes people a bit better off, if not as well off as he could make them (see my previous comment). That’s why we there’s a degree of leeway in how much we can profit from the misfortune of others when we’re buying from them.
In cases where *not* buying at the regular price is more like an acting, there’s less leeway. Consider this example: Jim comes once a week to wash your car and you pay him $10, until at some point you learn that unfortunate family circumstances have led to crushing hospital bills for him. Realising that Jim cannot possibly afford to lose a customer, you use your new negotiating power to insist that from now on, he washes your car for $2 a week. Isn’t this a kind of impermissible reverse price-gouging?
One last point. Mike Otsuka claimed in response to an earlier comment of mine that:
“Those who couldn’t afford to flee when Katrina struck didn’t constitute much of a market, because they had hardly any money to buy things, especially at inflated prices.”
This is inconsistent not only with what economic theory would lead us to expect, but also with the empirical facts. According to a report from the Federal Trade Commission:
“Higher gasoline prices in the United States after Hurricanes Katrina and Rita resulted in the shipment of substantial additional supplies of gasoline to the United States from foreign locations.”
Source: FTC’s “Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases,” http://www.ftc.gov/reports/060518PublicGasolinePricesInvestigationReportFinal.pdf, p. 196.
How is the fact that…
“Higher gasoline prices in the United States after Hurricanes Katrina and Rita resulted in the shipment of substantial additional supplies of gasoline to the United States from foreign locations”
…inconsistent with my claim that…
“Those who couldn’t afford to flee when Katrina struck didn’t constitute much of a market, because they had hardly any money to buy things, especially at inflated prices” ?
The higher gasoline prices were caused by these hurricanes’ disruption of oil platforms, refineries and pipelines in the Gulf of Mexico. That reduction in supply caused gasoline prices to rise throughout the US. It was this huge American market, rather than the demand for gasoline among those who couldn’t afford to flee New Orleans and the Mississippi Gulf Coast when Katrina struck, that attracted these foreign shipments.
Matt, the scalping analogy applies to markets where prices are unregulated because scalpers often influence the market clearing price by themselves restricting supply. A good price gouging analogy is what happened in the deregulated California electricity market, where suppliers and brokers restricted supply in order to produce shortages and increased prices. Now take the guy who presumably cleaned out the Costco in NC of generators, and suppose to simplify in the local Miami-Dade store. Obviously the people there would have been worse off having to buy from him than from Costco, as he was hiking a price that would have otherwise been essentially fixed for the duration of the emergency (whether from good will or just inertia).
I can’t resist one last comment on this: “If you’ve got a truckload of ice and a city of people with no power, you’re going to have some people in your line who want ice to keep their beer cold, and some who want it to keep their insulin cold. Selling it for $2 per bag probably isn’t going to get the former to step out of line. Selling it for $12 a bag might.” It’s an appealing theory, but how accurate is it in the real world where there are massive disparities in income and wealth? If high prices are in fact such an effective form of rationing goods according to people’s needs, would that explain why all the expensive SUVs and Humvees are driven by the people who most need them? And which pressing needs explain the distribution of private spending on research into life-saving and lifestyle drugs?
Oops, I meant: “..to simplify *that he bought the entire stock that was* in the local Miami-Dade store…”
Mike O. wrote:
“It was this huge American market, rather than the demand for gasoline among those who couldn’t afford to flee New Orleans and the Mississippi Gulf Coast when Katrina struck, that attracted these foreign shipments.”
Actually, if you look at gasoline imports broken down by region, you get an even larger effect. Imports of finished gasoline to Louisiana and surrounding areas increased more than 20 times after Katrina compared with one year prior. (See the EIA’s Petroleum Navigator at http://tonto.eia.doe.gov/dnav/pet/pet_move_wkly_dc_NUSZ00_Z00_mbblpd_w.htm). Unfortunately, the statistics aren’t readily available in any finer resolution than this, so it’s impossible to tell what percentage of this increase was due to victims of Katrina, and what percentage due to more general market disruptions, but the available data certainly seem to cast serious doubt on your earlier claim that there was an insufficient market among Hurricane victims for increased prices to serve as an effective signal for increased supply.
…cast serious doubt on your earlier claim that there was an insufficient market among Hurricane victims for increased prices to serve as an effective signal for increased supply.
I didn’t claim that. What I said was simply that “those who couldn’t afford to flee when Katrina struck didn’t constitute much of a market, because they had hardly any money to buy things, especially at inflated prices”.
By and large, these people were too poor to own cars. They relied on public transportation. I’m sure the data doesn’t indicate that others were rushing in to sell them gasoline.
Realising that Jim cannot possibly afford to lose a customer, you use your new negotiating power to insist that from now on, he washes your car for $2 a week.
If Jim charged $10 before the emergency, and cannot afford to lose you as a customer even at the rate of $2 (since presumably, at $2, he is still making a profit — otherwise he would gain more by ending the relationship), then wasn’t *he* gouging *you* before the emergency hit? I am detecting a bit of status quo bias here.
I don’t know if anyone has mentioned it (I could only scan through some of the comments) but there may be an analagous argument (not explicitly moral) in the discussions of unconscionable contracts in the philosophy of law. I know Alan Wertheimer has addressed it (in 1992 “Unconscionability and Contracts”) and there have been interesting court cases.
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