Why Price Gouging During Natural Disasters Might Be A Good Thing

November 20, 2017 in Daily Bulletin

Tyler Cowen talked about the lighter side of price gouging:

  • After natural disasters companies that raise the prices of essentials like water suffer massive social media blowback.
  • But if shops don’t do it, the people will simply buy it up and price gouge their neighbors.
  • This then contributes to photos of empty shelves – which can make a crisis seem worse than it is, and drive activities like looting.
  • If companies were able to charge higher prices they would have more of an incentive to increase inventories in the lead up to a disaster in the first place.
  • Supplies of essentials would also increase as neighboring entrepreneurs would migrate to the disaster area with supplies for sale, knowing they can get a good price.
  • The best alternative to price gouging isn’t forcing stores to sell at artificially low prices. It’s rationing, to make sure that people only get what they need in an emergency.

Read more of the argument here.