Does Price Gouging Actually Help in an Emergency?

I would be the first to say that there is no place for anyone who would use the effects of a disaster to loot, cheat, or steal from a suffering individual or a community during an emergency, gouging is an entirely different case. Is price gouging actually that bad? In a recent course we dove head-first into the debate after reading an article by Peter McCafferty. In the article, McCafferty stated his case using several arguments. [1]

I think that price gouging is actually a very important economic tool that ensures supplies last and so can meet ongoing demand.

McCafferty states, “It’s ridiculous that gouging is illegal.” Is he onto something? Is it ridiculous from an economics perspective to outlaw gouging?

There are a number of reasons, why it works including:

  1. Without price increases, many people buy extra supplies "just in case” leaving the shelves empty. An increased price might incentivize a business to add supplies.

  2. An increased price encourages people to conserve the resources they already have.

  3. When a business can increase a price, this encourages them to stock excess reserves. Storing materials is expensive so there needs to be a monetary gain to warehouse.

  4. Gouging pushes individuals to stock up on materials themselves because they realize that they might not be able to get them in the future.

  5. Prices attract more resources from outside of the disaster area, allowing reinforcements to make their way into the area. Without a monetary incentive, there is no reason for the business to attempt to bring in more resources.

Maybe we need to work on our disaster semantics. The term “Price gouging" is a derogatory term and definitely carries with it a negative feel. McCafferty suggests the more accurate description of "sustainable pricing.” This pricing ensures supplies are sustainable to meet the demand of future customers. When you start looking at it like this, it turns into a form of mitigation, where we are only attempting to lessen the severity, seriousness, or painfulness of the disaster. When presented like this, gouging is a little more palatable.

[1] http://www.huffingtonpost.ca/peter-mccaffrey/5-reasons-price-gouging-is-okay_b_3487621.html

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