Comments on: Why have 31 states passed anti-price gouging laws (and 19 not)?

By: Michael Giberson

Michael Giberson — Fri, 16 Oct 2009 19:22:22 +0000

libert does hit on an interesting issue, and dWj hits on my what would be my response. Rotemberg makes a similar claim in a working paper on fair pricing, that is to say, support for the laws should be puzzling to economists. I recall his explanation is the the beneficiaries are dispersed and uncertain and the size of the benefit small, while the costs are focused on a smaller, organized group. Normal public choice economics suggests laws get passed when the benefits are concentrated and the costs are dispersed.

Yes, some consumers expect to benefit ex ante, but in fact only those consumers able to secure gasoline (or hotel rooms, etc.) at the lower cost benefit and other consumers and suppliers are worse off.

I would guess that the laws are passed more for their emotional appeal than for their economic effects.

By: dWj

dWj — Fri, 16 Oct 2009 18:41:46 +0000

I was thinking more or less the same thing as libert, though I would point out that the supply-demand diagram you’re envisioning with consumer surplus increasing assumes allocative efficiency among buyers, which is particularly unlikely to hold here.

On an ex ante basis there are fewer beneficiaries; you might have to be lucky to get the gasoline. It may be that people whose time is of particularly low value (to them) would benefit as a class if there is rationing by waiting. This brings up another objection to the consumer surplus assertion — depending again on how rationing is done, there may well be a fair amount of rent seeking involved.

By: libert

libert — Fri, 16 Oct 2009 17:46:27 +0000

Interesting. But I’d dispute the claim that the enactment of APG laws is “puzzling from an economic perspective” because “there are no apparent beneficiaries from price ceilings.” Regardless of the net benefits/costs of the policy when comparing surplus across all individuals, there are clearly quite a few beneficiaries: everyone who purchases the good at the lower price.

Standard economic analysis shows that many individuals will benefit, and if supply is sufficiently inelastic relative to demand, total consumer surplus will increase as well. Thus it shouldn’t be surprising that price ceilings get passed: many people benefit from it!