In the wake of Hurricane Sandy, here are two takes on the question of price gouging in a time of emergency.
First, Matt Zwolinski (University of San Diego) presents the libertarian argument that price “gouging” provides an incentive to move products from lower areas of demand to higher areas of demand, and makes everyone better off. (This is a nice little video argument.)
Second, Planet Money recently had a blog post entitled “Why Economists Love Price Gouging, and Why It’s So Rare.”
The people [Nobel Laureate Daniel] Kahneman surveyed said they would punish businesses that raised prices in ways that seemed unfair. While I would have paid twice the normal price for my groceries yesterday, I would have felt like I was getting ripped off. After the storm passed, I might have started getting my groceries somewhere else.
Businesses know this. And, Kahneman argues, when basic economic theory conflicts with peoples’ perception of fairness, it’s in a firm’s long-term interest to behave in a way that people think is fair.
I think there is much merit in the Kahneman/Planet Money point.