the daily commute: blog 
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is there such a thing as price gouging?
by Brian ShraderPublished Sep 12, 2008
Views: 374
We're getting all kinds of tips in the newsroom about gas prices going through the roof overnight because of Hurricane Ike. Oil companies are shutting down refineries in east Texas, taking about 19 percent of the nation's refining capacity off line.
Back to Economics 101, when you remove supply, but the demand remains steady (or even increases as people hear about possible shortages and begin panic-buying), the price will go up. That's one way to prevent shortages. Another option would be gas rationing, which some retailers are instituting.
Many people have asked about price gouging. I don't know how to define price gouging. Apparently, the professionals don't really know what it is.
"Many economists cringe when they hear politicians talk about price gouging," said Greg Mankiw, a Harvard economics professor, told the Washington Post in 2006. "To economists, the price system is central to how market economies allocate resources. Sometimes prices need to rise to balance supply and demand, even if that outcome is politically unpopular."
Congress even asked the Federal Trade Commission to define "price gouging" in 2006. The legislation asking the FTC to investigate allegations of price gouging after hurricanes Katrina and Rita in 2005 asked the commission to define it as “any finding that the average price of gasoline available for sale to the public in September 2005, or thereafter in a market area located in an area designated as a State or National disaster area because of Hurricane Katrina,or in any other area where price-gouging complaints have been filed because of Hurricane Katrina with a Federal or State consumer protection agency, exceeded the average price of such gasoline in that area for the month of August 2005.”
By the way, it found no illegal price manipulation.
This morning, Attorney General Roy Cooper's office sent out a press release, in which it defined price gouging as "charging unreasonably excessive prices in times of crisis."
All of this brings me to this question: What is price-gouging? It seems that when prices exceed what we feel comfortable paying, we call it "gouging." But is it really? What is "unreasonably excessive" when supplies might not meet demand?
Filed under: Transportation
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GOLO member since February 21, 2008
September 12, 2008 12:12 p.m.
GOLO member since November 3, 2007
September 12, 2008 12:12 p.m.
GOLO member since November 23, 2007
September 12, 2008 12:16 p.m.
GOLO member since October 7, 2007
September 12, 2008 12:22 p.m.
GOLO member since July 7, 2007
September 12, 2008 12:26 p.m.
And this another example of how markets work to regulate prices.
GOLO member since January 25, 2008
September 12, 2008 12:27 p.m.
At $3, you'll have many more buyers who may not really need the ice as badly, eliminating the supply for those who do need it badly.
It's an application of the definition of economics: The allocation of scarce resources. Economists would say the price system is the fairest way to match needs with resources.
GOLO member since July 3, 2007
September 12, 2008 12:28 p.m.
September 12, 2008 12:29 p.m.
Today though, it's just the opposite in terms of pricing. One station I called this morning, after asking how much his gas was, said he was fixing to raise his because the station across the street had just raised their prices.
In defining the term "price gouging", this scernaro I think can define it perfectly.
GOLO member since September 11, 2007
September 12, 2008 12:33 p.m.
Looks like someone took some Econ classes....excellent point!
GOLO member since August 28, 2008
September 12, 2008 12:33 p.m.
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