Price Gouging: Not as Bad as People Think

Courtesy of Flickr Creative Commons

SFL Staff

According to CNN, Hurricane Matthew is the “strongest storm to hit the U.S. in over a decade” and caused a death toll nearing 900 in Haiti. Seeing how life-threatening Hurricane Matthew is, South Carolina imposed mandates to make evacuation more efficient and to ensure people’s safety, such as lane reversal of 1-26 eastbound and state-mandated curfew. Although the state passed these regulations with good intent, the one mandate that was misguided was price controls — states controlling the costs on commodities, such as gas, water, and even hotel rooms, rather than allowing markets to naturally make the call on the costs.

Price gouging is a natural, market mechanism that increases the cost of goods to reflect consumers’ high demand for them, and resources are then allotted to those who need them the most. By surging the price of commodities, products will not fall to shortages and will remain abundant for purchase.

But some do not grasp this. According to South Carolina Attorney General Alan Wilson, “[…] we will see many neighbors helping each other during this delicate time. However, we may also see some looking to unfairly take advantage of the situation through price gouging of food, gasoline, lodging, water and any other commodities as defined by the statute. Pursuant to state law, price gouging constitutes a criminal violation and an unfair trade practice.”

Courtesy of Flickr Creative Commons

Businesses are not “looking to unfairly take advantage of situation through price gouging.” In fact, businesses are creating an ideal situation by allowing costs to adjust to fit the demand. That way, people can survey their options and decide whether or not to make a voluntary purchase. When government manipulates costs, consumers would not even have the opportunity to explore their choices as resources remain scarce.

If the state imposes price-fixing legislation, people will experience shortages. When Governor Nikki Haley announced the state of emergency for Charlestonians to evacuate from Hurricane Matthew, residents rushed to grocery stores and gas stations to stock up on food and gas in order to be prepared. However, because of the price-fixing statute in effect, many – including myself – found empty shelves at grocery stores and long lines at gas stations since people eventually exhausted all available resources at the fixed price. That is why price gouging is absolutely necessary to not hurt consumers.

Look at the example of Florida in preparation for Hurricane Matthew. According to Tricia Beck-Peter, “[w]hen the price of a product, such as a generator, rises, there are fewer buyers. This reserves stores of these generators for those who need them most. The higher price would discourage those seeking the generator for frivolities – to update their Facebook statuses with pictures of their hurricane parties, perhaps.” Furthermore, “[h]igh prices incentivize conservation of resources for those most in need, and incentivize more people to transport goods to affected areas for sale.”

People should not be so quick to assume businesses that surge costs are scummy because entrepreneurs are incentivized to coordinate resources in socially beneficial ways. When prices reflect demand, goods are fairly allocated to buyers, while resources still remain plentiful. That is why price gouging is so extraordinary: it doesn’t harm consumers, but protects them. If we take a step back and realize the benefits this pricing mechanism produces, then we may begin to appreciate the spontaneous workings of a free market economy, which our current economic framework should strive toward.