In Favor of Price Gouging?
A big water-main break in Boston sends everyone scurrying to stores to buy bottled water. Inevitably, stores sell out of water quickly; and, just as inevitably perhaps, there’s talk of price gouging — accusations that some stores jacked up the price of a bottle of water to unconscionable levels. The Massachusetts attorney general vows to investigate.
Assume for a moment that every store tripled the price of water as soon the shortage became evident. How outraged would you be? How outraged should you be? Or, perversely, do you think stores should have charged even more, perhaps 10 times the normal amount for a bottle of water?
How you answer these questions probably depends on when you got to the store (and/or whether you have studied economics). If you arrived in time to buy as much water as you wanted, you were probably a bit ticked off to pay triple, but still grateful you got your water. If the bottled water was all gone by the time you arrived, you probably wish the store had charged 10 times the normal amount. That high price would have acted as a brake against all the unnecessary hoarding that happened before you got to the store, and there would have been some water left for you.
There’s a very strong passage on this topic in Russ Roberts‘s economics novel The Price of Everything, more on which here.