Professor says price gouging is simple supply and demand at work
By Saturday afternoon, Florida’s Attorney General Office had received more than 8,000 complaints of price gouging tied to Hurricane Irma. But are artificially inflated prices only following the basic laws of supply and demand?
Speaking to CNN on Saturday, Steve Horowitz, an economics professor at Ball State University, said raising prices on a temporary basis helps ensure existing supplies get used in “the most important ways.”
He added, “One of the advantages in letting prices rise is it forces people to make the tough decisions. If I‘m going to buy bottled water, I’m going to use it to drink or to help my elderly parents. I’m not going to use it to bathe my dog.”
Michael Smerconish, the CNN host, pointed to shopping carts full of bottled water seen earlier last week as an example of irrational purchasing.
Secondly, the higher prices provide an incentive for those outside the state to expend the time and money to restock those resources, as shown in past similar disaster situations. The professor added, “Without that price going up, that process does not work nearly as well.”
News reports, spurred on by photos on social media, have been filled with incidents of gouging in Florida as well as in Texas caused by Hurricane Harvey, including $99.99 for case of bottle water sold by a third-party on Amazon.com. Many 7-Eleven stores were called out for selling cases for a more-reasonable $24. Gas, hotel rooms and airline prices were also under scrutiny.
Mr. Smerconish suggested that the poor were perhaps “screwed” regardless because they either faced shortages or couldn’t afford the higher prices.
Prof. Horowitz said the choice isn’t between “cheap plentiful gas and expensive plentiful gas” but “expensive gas that’s actually in the pump and cheap gas that’s gone.”
He also said raising prices won’t help everybody. Said the professor, “We’re in an emergency. Supplies are short. There’s no perfect solution. Markets that let prices rise aren’t perfect. There are people that will suffer from it.”
- Hurricane Irma: A case of water sells for $99.99 on Amazon as residents fear price gouging – USA Today
- 7-Eleven provides free water in Florida after accused of price-gouging – The Hill
- Almost 7,000 complaints of price gouging ahead of Hurricane Irma: Florida attorney general – CNBC
DISCUSSION QUESTIONS: Should prices be allowed to go up to better balance supply and demand in emergency situations as seen in Florida and Texas? Are price controls necessary to prevent excessive gouging or is that counterproductive? Should retailers rethink pricing for future crisis situations?