Reply To: Price Gauging on a Free Market


Thanks all for the responses. So would yall agree with this synthesis? [I just took the material of your responses and made a short outline]

1. Price gouging is an apparent problem but not an actual problem on a free market. In theory, people may be afraid in times of crisis that prices of gasoline, batteries, and other necessities will be raised unfairly by corporations seeking to exploit consumers for profit. However, further analysis shows this view does not match the market realities.

2. (A) A sharp and sudden increase in demand calls for an increase in price so that markets can clear. If prices are not allowed to rise, then shortages will inevitably follow since there will not be enough supply to meet market demand at that price.

(B) An increase in price promotes conservation and prevents a widespread waste of resources [e.g. people only purchase the amount of gas they will use and will not stockpile as much unnecessarily]. Moreover, this helps to ensure more resources will be available for those in desperate need who don’t happen to get on line first.

3. Corporations may choose to raise prices WELL ABOVE the new market-clearing price as a result of the crisis, but then they will have excess supply. If several corporations collude to maintain a price WELL ABOVE a natural market-clearing price, then other sellers will enter the market and offer lower prices to compete and make a profit. This will allow prices to fall to the market clearing price.

4. Speculation would prevent any severe price increases in emergencies. Entrepreneurs would be prepared to shift supplies into the disaster area for profit. “Their increased supply of goods would moderate the price increases necessary to clear markets under the new conditions.”