Economists and policy analysts opposed to price gouging laws have relied on the simple logic of price controls: if you cap price increases during an emergency, you discourage conservation of needed goods at exactly the time they are in high demand. Simultaneously, price caps discourage extraordinary supply efforts that would help bring goods in high demand into the affected area. In a classic case of unintended consequences, the law harms the very people whom lawmakers intend to help. The logic of supply and demand, so clear to economists, has had little effect on price gouging policies.
One of the reasons I’m fascinated by price gouging is that it involves a tight tangle of economics, moralizing, ethics, psychology, law and public policy. Most economists are persuaded by the supply and demand argument. Many non-economists rebel at the idea that merchants should be free to raise prices on goods that are in high demand due to emergencies. Working out good policy in this area presents some interesting challenges.
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