Tuesday, October 30, 2012

Price Gouging Saves Lives in a Hurricane

That is what David M. Brown says. In a world in which sellers who raise prices in response to demand spikes are routinely derided and scorned, Brown's analysis provides a much needed antidote. Brown's essay originally dates from August 17, 2004 drawing on his own immediate experience with Hurricane Charley. In his essay, Brown makes the important and much needed theoretical point:

Nobody knows the local circumstances and needs of buyers and sellers better than individual buyers and sellers themselves. When allowed to respond to real demand and real supply, prices and profits communicate the information and incentives that people require to meet their needs economically given all the relevant circumstances. There is no substitute for the market. And we should not be surprised that command-and-control intervention in the market cannot duplicate what economic actors accomplish on their own if allowed to act in accordance with their own self-interest and knowledge of their own case.
He also explains why this point is of supreme practical importance when responding to a natural disaster.

If we expect customers to be able to get what they need in an emergency, when demand zooms vendors must be allowed and encouraged to increase their prices. Supplies are then more likely to be sustained, and the people who most urgently need a particular good will more likely be able to get it. That is especially important during an emergency. Price gouging saves lives.

No comments:

Post a Comment