Price Wars: Attorneys General Strike Back

Michael Giberson

Rainbough Phillips amusingly tags price gouging as “the Phantom Menace” in a post on Catallarchy. She also provides a neat insider’s look at the supply and demand for emergency supplies, viewed from the returns counter at an Austin-area big box hardware store.

Meanwhile, back in Houston, authorities are urging the city’s gasoline station employees and owners to return as soon as possible.

It is purely a coincidence, of no relevant economic logic or moral importance I’m sure, that the higher the gas station’s price-cost margin, the greater the incentive the station owner would have to do what authorities are saying would be the right thing to do. (Or, perhaps, even remain behind during the storm, the better to serve their customers.)


11 thoughts on “Price Wars: Attorneys General Strike Back

  1. Maybe we can “split the baby.” In a declared emergency/crisis whatever the price of gasoline or other essential commodities can resemble taxation. 2 gallons, $4. 4 gal $16. 8 gal $64. No one is going to stand in line 4 times to get below market rates and the lines will move faster and the commoditiy will last longer.

  2. Higher profits margins probaby would induce the owner to open sooner, but it would have no impact on the employees decisions about when to return to work.

    Ok, how about looking at the example cited in Callarchy. A gas station closed half of it pumps to make people think it was running out of gas and raised prices. Once the state caught them and required them to open the pumps back up prices fell. Now the example did not make it clear if the state made them lower prices, but I had the impression they did it voluntarly.

    OK, you have a case of a business misleading its customers to raise prices above the market clearing prices — what other stations were charging. Now why is this not gouging?
    It seems to me a case of one individual taking advantage of temporary factors to increasee his profits makes a much better example of gouging then the democratic congress case you advanced the other day.

    By the way, making a post claiming that the congressman was gouging completely destroyes your credibility in my mind after you had been arguing that gouging does not and can not exist.
    If you claim he was gouging it means you believe gouging is possible.

    Why is this judgement about you wrong?

    You think your tenure committee would look favorably on this example?

  3. Spencer,

    Aside from state law, why can’t a store charge whatever it wants? I can charge you whatever I like for a hamburger, and people must eat, why can’t a merchant charge you whatever he wants for gasoline? I can shut half my restaurant to make it apprear busy. Why can’t a merchant shut half his gas pumps?

    If you pay it, that is the price. If you don’t pay it, then it is not the price.

    JBP

  4. People who complain about gouging make the mistake of thinking about economics as something that had to do with morality. In reality, economics are much more like nature, and rising prices are a simple result of the supply shock that appeared after the refineries in the Gulf of Mexico had to close down, and gas station owners fled the area. Nobody would call a hurricane, a flood, or an earthquake “evil” – because they’re mere results of physics.
    The very same thing is true with economics – one can apply standards of good and evil when dealing with individual beings, but when it comes to setting the price for a scarce commodity, we are speaking about thousands or millions of people that are players in the marketplace. But there is nothing like a common conscience within a large group of people – they will only act after their INTERESTS, which are to maximize profits for sellers, and to maximize utility for buyers.

    After the hurricane, dozens of foolish politicians wanted to set maximum prizes for gasoline or – even more foolish – wanted to suspend state taxes on fuel. Both are measures that would have made the situation rather worse than better.
    If there was a maximum price on gas, this would discourage sellers to shed more fuel into the market. With prices skyrocketing everyone that has oil on stock would hurry to get it out in the market, which in turn would bring prices down again. With a maximum price, the market wouldn’t come to an equilibrium and a shortage of fuel would appear – that means, prices would be low, but demand wouldn’t be met.
    Suspending state taxes on gas would only result in inflating the profits of oil companies but not in lower prices. This is because, demand for gas is very inelastic in the short run, which means that when the price rises people reduce their consumption only by little. Therefore the producers would only sack the suspension of taxes as an extra margin.

    @John Powers: It is true that a seller may charge any price he wants, but shutting half of a gas station’s pumps is not playing by the rules, because here we get a knowledge problem, since the seller is lying to the buyers about the availability of a commodity. Basically it’s not different from a second hand car dealer that manipulates a car’s mileage. This is a market failure and is illegal for good reasons.

  5. So oceanhug,

    How is that different from the restaurant that closes a section to appear more busy?

    Don’t you figure out at the gas station by the price signal that they don’t have as much gas as they would like to sell you? Perhaps they don’t have a consistent and reliable supply of gas, so thus they shut off some pumps.

    JBP

  6. Well, in economics in order for markets to work more efficiently the seller and the buyer need to have to have the same information, because if any of them has more information he can fool the other part and that is not efficient.
    A restaurant maybe a bit different (although it’s the same principle), since it may be obvious to people that one section is closed, because there’s not much traffic. Anyway, most people don’t like sitting in empty restaurants anyway.
    But still, staging that a good is more scarce than it actually is, is no good. (For the reasons I gave before)

    Cheers,
    oceanhug

    **check out my new blog, The Teutonic Spectator.**

  7. Well, in economics in order for markets to work more efficiently the seller and the buyer need to have to have the same information, because if any of them has more information he can fool the other part and that is not efficient.
    A restaurant maybe a bit different (although it’s the same principle), since it may be obvious to people that one section is closed, because there’s not much traffic. Anyway, most people don’t like sitting in empty restaurants anyway.
    But still, staging that a good is more scarce than it actually is, is no good. (For the reasons I gave before)

    Cheers,
    oceanhug

    **check out my new blog, The Teutonic Spectator.**

  8. Oceanhug,

    I don’t want to break your heart, but it happens all the time…it is called marketing. There is no diamond shortage, they could be as cheap as cubit zirconium…Chanel No. 5 really is not in such short supply that it is valued at $100 per oz….that pink martini at the hotel bar, really does not have 15$ worth of gin in it…

    Again, why does anyone other than the merchant get to determine how to market a product? The customers will tell you soon enough if it doesn’t work.

    JBP

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