” alt=”" width=”214″ height=”300″ />Every time a hurricane or other national disaster rears its ugly head, there are always a slew of news headlines about price gouging.
According to Wikipedia, price gouging is “a situation in which a seller prices goods or commodities much higher than is considered reasonable or fair.” Thirty eight states have price gouging laws that generally prohibit raising prices during disasters on goods that are deemed essential and necessary. Sounds like a good idea, right? After all, states should crack down on suppliers who take advantage of the common folk for profit.
But consider a couple of scenarios. Suppose that service stations in the town of Smallville sell gas for an average of $3.50 a gallon on a typical Tuesday. The retailer has no immediate concerns about supply disruptions and the demand for gas is like any other day. Some drivers will fill up their tank on Tuesday; some will wait until another day. Thus, supply and demand are in a state of general equilibrium.
Suppose, however, that a hurricane is headed to Smallville and is expected to make landfall on
Friday. If a state of emergency is declared and evacuation is required, all of the drivers who would have waited until the weekend to fill up their tanks will be scrambling to get gas on Wednesday and Thursday before the hurricane hits. This spike in demand warrants an equal response from the supplier, which means a price increase. If prices remained at $3.50 a gallon during a peak demand period, the first drivers to get to the pumps would fill up their tanks completely or top them off, giving them more than enough to evacuate. The result would be an almost immediate shortage for other drivers.
Suppose that prices rose to $5.00 a gallon in response to a peak in demand and an anticipated supply shock? Considering the need to escape impending doom, drivers will most certainly pay $5.00 a gallon. But, they may alter their behavior at the pump by purchasing fewer gallons —just enough to get them to out of the hurricane danger zone. Or they may buddy up with others and chip in on a ride. The likely result would be that those who want gas will be able to get it, regardless of the price.
An economics professor once told me that lowest price viagra “price is sacred.” There is no reason for blaspheming the price rationing mechanism during times of disaster.
If states’ attorneys general wish to pursue swindlers during natural disasters they should instead focus their efforts on suppliers who come into disaster-stricken areas promising goods and services they do not deliver. Rationing by price should not be criminal — but consumer fraud is.
Looking at NYC gas prices today, the highest quoted price for regular gasoline is $4.79 per gallon. If gasoline is available elsewhere for $3.79, is that gouging? (Considering that the cost of business (labor, land & taxes) is much higher in NYC, I’m surprised it isn’t $10 per gallon.) So if we are willing to recognize that there is a rational reason for prices to vary geographically, why shouldn’t we recognize that there are rational circumstances under which we would want the price of a good to go up temporarily, so that the good is available?
(We also tolerate without complaint the fact that dinner menu prices are often double what the same food costs at lunchtime.)
1. wikipedia contains only what is by popular agreement, which may or may not represent accurate truth. Popular misconceptions, accepted by several generations but in not factual, are often found at wikipedia. It is basically a popularity contest, no more reliable.
2. “There is no reason for blaspheming the price rationing mechanism during times of disaster.”? Well, then you miss the whole point about gouging. The point is that during risk to life and property, it is despicable to apply SUPPLY AND DEMAND economic principals, or to profit excessively at others’ misfortune. In your example, the gas station owner simply calls his supplier and says I need extra deliveries. The per gal price should not change, right up until that supplier is out of fuel, or else he is also despicable, because he is making the SAME AMOUNT OF PROFIT he was making yesterday.
Maybe a course in ETHICS would be more appropriate for you.
Gloria,I understand your points. But you are assuming that the station owner can simply call and get extra supplies. That may not be possible for awhile, particularly if roads are closed due to intense flooding. If I was a consumer in Smallville, I would rather pay $10 for a couple of gallons of gas to get me out of the wake of the disaster than to get to the station and find out that everybody has hoarded the $3.50 gallon gas. I think the ethical thing to do is to make certain as many people can leave as possible. Price controls never work in that situation.
Well I paid 15cents more to fill up my tank on Saturday evening in Ft. Lauderdale than I would have Friday, and I GUARANTEE it only made the dealer MORE MONEY, it didn’t cost him more to get it replaced. That’s B.S. the problem is greed, not supply.
Hoarders are even worse than price gougers, aren’t they? Hoarders selfishly stock up on a good in short supply, like gasoline in a disaster area, and don’t let others who may have a greater need for the good have any. At least price gougers offer the supply to the public. Of crouse, the rich may be the only ones with enough money to acually pay for it…..
But since you filled up your tank, I assume you got all that you needed, right?
I fill up my tank only once every two weeks, when it gets near zero, always on a Saturday. My tank was near zero. It was time and there were no shortages here.
Typical, when presented with logic and facts, then resort to personal attacks and lies. You must be liberal!!!
and whom would you consider in most need, arrogant Mr. Jim?
I am 60 and sick, currently only partially employed since layoff months ago. I live 2 blocks from beach, 60yr old windows that don’t seal, condo association doesn’t allow shutters, no family to stay with. I needed to be ready to wade through the water, jump in my car and flee if one of the windows broke or power went out. Nearest place I could go it 2 hrs up the road. I suppose you’d like me to have run out of gas!
This is how Barack Obama keeps people from understand REALITY, by attack attack attack, nothing to do with facts!!! Go on follow blindly and let your shriveled, indoctrinated brain tell you how smart you are. What goes around, comes around. but God Help Us.
No, not at all and this is not at all personal. But the fluctuation in market prices ensures that there is a supply of gasoline. I am just making the point that you were able to get what you needed, even if it was 15 cents more per gallon.
Think about price controls on other goods, such as food. Venezuela enacted price controls and now there are constant shortages. Because farmers can no longer profit, they have stopped producing. As a result, people are now worse off than they were before.
I couldn’t afford to live 2 blocks from the BEACH!
Interesting viewpoint…when Hurricane Katrina hit New Orleans a lot of my classmates told me horror stories about trying to escape the city in the gridlock while people were running out of gas on the highway and forced to abandon their cars, so I have mixed feelings on the issue. However, I agree with your idea to carpool and only take as much gas as needed.
@Joe – Having supported myself through my undergrad in the service industry, your analogy to lunch vs. dinner pricing made me laugh. Spot on.
@Gloria – Wikipedia has long been shown to be a reasonable source. While I would rather quote a ‘legitimate’ study or article for a scholarly paper, Wikipedia remains more-or-less accurate for most general knowledge, as shown in a study by Nature comparing it to the Encyclopedia Britannica:
http://news.bbc.co.uk/2/hi/technology/4530930.stm
Right?
Picking and choosing when to apply free market principles is a slippery slope.
I’d love to have the number of an oil company willing to drive into a hurricane to resupply at the request of a lowly gas station owner.
+1 on Pam’s thoughts about altered behavior.
Just as an outside observer.. Ms. Gloria, you’re definitely leading the charge on personal attacks.
a very lively discussion. if there is a spike for demand in the case of an emergency it may make more sense for a rationing of supplies or maybe even a cap on the increase of prices
@seyyed, Price caps are the same as price controls. They will result in shortages. Depending on how long the price caps are kept in place will result in loss of production and long-run shortages. Rationing without a market price would be difficult as well. How many gallons of gas should each person receive? Who should be eligible to receive gas? Rationing in this manner often leads to corruption and cronyism (i.e. friends and family of the gas station owners would recieve gas at the expense of others).
I recall the longer-run rationing tools used during the 1970s energy crisis. Odd numbered license plates got gas on certain days, even numbered plates got gas on other days. The result? Long lines and shortages.
Gloria, Hurricane Isaac has prompted the shutdown of most of the oil production platforms in the Gulf of Mexico. This temporary dip in production will deplete some of the existing inventories of crude oil and the gasoline made from it; and boost the price accordingly. I checked the gasoline futures contracts (Sept delivery) from Friday to Monday and the price closed about a dime higher than on Friday. You paid $0.15 cents more, which is a reasonable price increase given the wholesale price of gasoline (to replace the gasoline you bought) rose by at least a dime and probably closer to the additional $0.15 cents per gallon you paid. The gas station had little reason to sell gasoline for less than the “new” market price given that external conditions had changed the market from Friday to Saturday.
Another factor is the uncertainty that exists about how soon Gulf production can resume and where wholesale prices might be next week. The price increase you experienced doesn’t sound like price gouging as much as shifts in the intersection of the quantity of gasoline producers are willing to supply at a given price compared to the quantity of gasoline consumers demand at a given price.
I suspect all the other service stations boosted the price of their gasoline buy $0.15. Any station that didn’t would quickly sell out its existing inventory and have to replace it at a much higher price.
Price will become sacred, if your trying to flee from harm. I can remember when Ike was a tropical storm, gas was 2.41 and jumped up to 4.89 over night.
Also, now is the time when refineries are switching from summer blends of gasoline, to winter blends of gasoline. Lets, not forget that the core of refining capabilities in the US (as well as the world) are located on the gulf shores of Texas and Louisiana. This, along with oil platform shutdowns, are the reason for the spike.
John — oil as a commodity works on its on set of fcroes, OPEC, government policies, etc. And I sure can’t figure them out.The UK and Europe definitely control usage through tax, we are more reluctant to do that. Our gasoline tax is mostly a usage tax, as I understand it.When my daughter went to visit her aunt in England she was sent off for the day with a pickled beet sandwich and cucumber sandwich. Something wrong with that.