Price Gauging on a Free Market

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    I live in NJ and in the wake of Hurricane Sandy and the temporary gas shortage, people are already calling for lawsuits against gas companies for PRICE GAUGING.

    As a learner of liberty, I find these lawsuits to be extremely odd, especially when you consider that PRICE GAUGING laws give the State power to dictate how much and when businesses are allowed to raise prices.

    My question is: How would the problem of PRICE GAUGING during a crisis be dealt with on a Free Market? For example, tons of people all need gas, and the gas companies jack up prices to $15.00 a gallon.


    Price gauging is not really a problem but the necessary adjustment process necessary for supply and demand to equilibrate. If demand for a product increases (as is the case now), its price has to rise. When this is not allowed to happen, there will be shortages as you see right now. Long lines are the consequence.

    Check out this article:
    and this video:


    Thanks Sons of Liberty! Very helpful responses


    Assuming an unhampered market economy free of government intervention, If the local gas prices in NJ skyrocketed, people would shift gasoline supplies to NJ to take advantage of the price discrepancy, driving prices down in NJ towards the market clearing price. High gas prices definitely hurt, but we live in an imperfect world of scarcity and economic laws will always apply. The market must be allowed to adjust accordingly with price signals.



    Speculation would dampen any actual price increases in emergencies. Anticipating higher prices, entrepreneurs would be prepared to shift supply from other markets into the disaster area. Their increased supply of goods would moderate the price increases necessary to clear markets under the new conditions.


    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.”

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