OnPoint: On Price Gouging
171 Responses
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fuck-all impact
Ahem. *Mess*-all impact, if you please.
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I'm surprised that the commenters here seem to think that if they cannot personally imagine how petrol can be shipped an hour down the road at short notice, then it cannot happen.
I wonder if it's a case of deny any goodness whatsoever to dirty filthy higher prices, no matter what.
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Danielle, in reply to
Oh, we can imagine it. Just like we can imagine a unicorn. But we are unlikely to see a horned pony any time soon.
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They reported some actual gouging among people renting to businesses trying to relocate out of the city, and keep working, employing staff, and contributing to the local economic recovery. Why don't you discuss that, instead of creating a liqui-fiction around petrol prices.
I can't follow either the argument or the reason for arguing.
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Dismal Soyanz, in reply to
if prices spike, no phone calls are required – doubtless the media will report $4 petrol.
So suppose you are a consumer and your local petrol station ups the price to $4. You know that there are two or three other stations within 5 km radius of your home. How do you know which ones are "cheap"? No - not really disingenuous - you just missed my point.
the general proposition that higher prices encourage supply, in and outside a crisis, really shouldn’t be that hard to see
Assuming all the issues as to obtaining a commercial load of fuel, getting a mode of transporting the fuel, finding out where the prices are high, and the service station owner-recipient is convinced that the arbitrageur is selling kosher fuel are resolved, then yes - a higher pump price might encourage an arbitrageur. But as BenWilson pointed out, would there be any meaningful impact? How many tanker loads wold it require? How many tankers would be required to push the price down? Over what time frame?
This all assumes that prices have gone up. Any meaningful lift in supply would have to come from the big oil companies. Although the big fuel companies may have a bad rap for lifting prices during normal times, it would be extremely bad PR to allow their own company owned-company operated stations to up the price and then bring in more after a few days. [I still don't buy BP because of the Gulf of Mexico.] And the same applies to independent station owners - the backlash they would get for raising prices would be fairly harsh.
So it's possible - yes. But it isn't likely
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There's a couple of things I don't understand, and they might be stupid things, but hey, I'm not proud.
If the idea is that prices are the most efficient way of finding out who really needs the stuff; and if you need a govt subsidised work around to make sure that the people who really really need the stuff can afford it, then the idea is a bit broken. No?
Where does the govt get this info about who to subsidise? If that is info the govt already has, then what info is gained from the pricing business?
Secondly, (and it's probably already been talked about but I just don't recognise the language being used), if someone has a large supply of money, then each dollar isn't worth as much to them as someone who has a small supply of money. This seems to make sense to me, and if it is true then it would follow that if you have potloads of money then it doesn't mean that you being prepared to spend twice as many dollars as usual on petrol means you need it more. It could well just mean that the extra money isn't worth very much to you at all. What's $500?
If that makes any sense at all, then the defences of gouging start to look like reasons for the wealthy to avoid sharing the inconveniences of the broader population.
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I too am confused about what this argument is about. The recommended $4 per litre pricing of petrol has apparently not been implemented. If the residents of the South Island are rational agents and have freely chosen not to sell at such prices, doesn't it follow that such prices are irrational?
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An acquaintance told me of her son and his flatmates who are being evicted - they're students at Canterbury - several of them had just finished jobs for companies in the CBD that just plain don't exist any more - they haven't been paid - and the Uni isn't processing student loans etc - they can't pay their collective rent so their landlord has given them notice - their scummy flat is still standing and I guess he can get a lot more from desperate refugees
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Swan,
What is so special about the ex ante price though? What about the guy in need who lost his wallet in the quake? Surely the petrol companies were being ruthless for charging 2 dollars a litre. Why not a dollar, why not give it away for free?
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Dismal Soyanz, in reply to
If the idea is that prices are the most efficient way of finding out who really needs the stuff; and if you need a govt subsidised work around to make sure that the people who really really need the stuff can afford it, then the idea is a bit broken. No?
Yep. Typically the concept of transfers is used as a means to compensate for the higher price. But in this case, it is just not feasible.
If that makes any sense at all, then the defences of gouging start to look like reasons for the wealthy to avoid sharing the inconveniences of the broader population.
Which is kinda the point Keith made. Price gouging hurts the wealthy less.
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Jason Le Vaillant, in reply to
There's a couple of things I don't understand, and they might be stupid things, but hey, I'm not proud.
If the idea is that prices are the most efficient way of finding out who really needs the stuff; and if you need a govt subsidised work around to make sure that the people who really really need the stuff can afford it, then the idea is a bit broken. No?
Where does the govt get this info about who to subsidise? If that is info the govt already has, then what info is gained from the pricing business?
Secondly, (and it's probably already been talked about but I just don't recognise the language being used), if someone has a large supply of money, then each dollar isn't worth as much to them as someone who has a small supply of money.
Well, quite. Translating them back into economics-speak, those are two of the most important criticisms of Kaldor–Hicks efficiency as a welfare criterion: (1) The absence of suitable mechanisms and information to compensate the losers in "efficient" outcomes, and (2) The diminishing marginal utility of wealth. (Nevertheless, price signals are still a pretty good way to find out who really needs stuff.)
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What is so special about the ex ante price though?
While not everyone agrees that the ex ante price is fair, I don't see anyone arguing that it is too low. So what is special about it is that any higher price will appear to be profiting from other peoples' misfortune and with a disaster of this magnitude most people will find that morally reprehensible.
Surely the petrol companies were being ruthless for charging 2 dollars a litre.
You can certainly make that argument. Oil and gas companies make up 6 of the top 10 companies by revenue worldwide - that could indicate that they are charging "ruthless" prices. Certainly they've been accused of pricing collusion often enough.
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Russell Brown, in reply to
Now petrol is more difficult than ice. But, really, can nobody anywhere solve the necessary problems at short notice? I wouldn’t bet on it. Even if in this particular case they can’t, the general proposition that higher prices encourage supply, in and outside a crisis, really shouldn’t be that hard to see.
What you're saying is that you'd like the reality to change so that your theory works ...
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Sacha, in reply to
a Hayekian fantasy plane
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Since he's now gone and written it, yous should probably consider reading Eric's response, in which he makes his case with considerably more nuance.
L
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Just arrived Auckland and still catching up with everything. But one quick point: the morning after the last earthquake -- and knowing that my suburb had been very badly hit -- Eric Crampton emailed me and offered my family a place to stay. He'd never met me in his life. So he's certainly no stranger to the concept of altruism and social solidarity.
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Keith Ng, in reply to
This is not complicated.
Well, if you can sell the petrol for a very modest $1 per litre markup from retail and assuming the tanker carries around 30,000 litres, you'd make $30,000 gross.
I have no idea how much it costs to hire a tanker plus a driver, but let's make a generous estimate of $2,000 a day inc insurance, and assume you can deliver and sell within 3 days, that would get you around $24,000 net profit for a few days of non-complicated work.
Surely, that's worth your while, right? You should totally do it.
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Keith Ng, in reply to
An acquaintance told me of her son and his flatmates who are being evicted - they're students at Canterbury - several of them had just finished jobs for companies in the CBD that just plain don't exist any more - they haven't been paid - and the Uni isn't processing student loans etc - they can't pay their collective rent so their landlord has given them notice - their scummy flat is still standing and I guess he can get a lot more from desperate refugees
Sounds like a job for student media! Can I put them in touch with student media? Email me at keith at point dot org dot nz.
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Keith Ng, in reply to
Since he's now gone and written it, yous should probably consider reading Eric's response, in which he makes his case with considerably more nuance.
Finally figured out the concept I've been looking for this whole time: Income elasticity of demand. aka Rich people can pay more, and we have a friggin' graph to prove it.
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Joe Wylie, in reply to
. . . a place to stay
Which you and yours, Ian D, and the esteemed Geoff Lealand, who I've never had the privilege of meeting, so kindly offered when I'd been rather more severely quake-munted back in September. Such things are not forgotten.
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Keith Ng, in reply to
Oops, sorry Ben. Didn't see your big post. Apologies for reviving stuff that's been hashed out.
First hording occurs because people can see the market is not being allowed to clear and they correctly foresee shortage occurring.
People hoard if they *expect* a shortage. They cannot know, when they are hoarding, if they are correct or not.
You argue that makes petrol demand inelastic, and if allowed to go free the price will rise enormously. How do you know?
Because people queue for hours to get it.
The fundamental mistake you are making is to see price increase as immoral or opportunistic, rather than the automatic and fundamentally useful response to shortage.
People feel that receiving a windfall as a result of tragedy is unjust - it's not a moral prescription, just a statement on how human beings are wired. Don't take it up with me, take it up with evolutionary psychology.
I’m disappointed and mildly surprised so few commenters seem to subscribe to this view. It is entirely consistent with compassion and being human to argue for the allocation mechanism that gets an important resource in short supply to where it is most needed. Keith you put all the fundamentals in place, and them abandon them to assert but not show the merit of nonprice rationing.
As I said, first-come-first-served is not a good solution. But this doesn't mean that price rationing is good, or even better. It is inherently inequitable, and its impact on social cohesion has very tangible flow-on effects.
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Sacha, in reply to
Eric's response, in which he makes his case with considerably more nuance.
Not really - it still centres around an ignorant conflation of need with ability to pay - that everyone who needs something is magically able to pay whatever price the market dictates. A fantasy level playing field. Eric does, kind of, address the poor (I just doubt he has ever met many of them).
it's still very plausible that a temporary doubling of petrol prices would have reduced queuing and ensured that adequate supplies were available for folks who really needed them.
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This isn't a "screw the poor" thing. Is a poor person worse off having to spend $40 than $20 to get enough gas to get through a two day period, or worse off having to spend a whole lot of time in a queue for potentially no petrol at all? Recall that poor households are more likely to be single parent. Who's looking after the kids while Mom's queuing for petrol?
But overall it's just because we all don't get it.
temporary price hikes that would likely be misunderstood and resented by customers
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public irrationality about the working of the price mechanism
Thank goodness there are wise and rational economists to put us straight, eh.
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Sacha, in reply to
you'd like the reality to change so that your theory works
pretty good summary
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Bart Janssen, in reply to
My point really is the context
Exacery. Economics has some pretty good maths to deal with cases such as those you describe but human behaviour sometime messes up the maths entirely, those damn humans and there behaviour without them economics would be perfect.
But for now the science of economics as applied to real people is bullshit. To be fair they get it right sometimes but I'm, not 100% sure that isn't just statistical variation at work.
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On a more practical level, and ignoring whether or not it is a good idea, could Gerry Brownlee step in and set region wide prices for items such as petrol and milk under the wide ranging powers he has?
[ducks]
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