EconVersations: The Economics and Ethics of Price Gouging (episode 114)
Summary
TLDRIn this episode of 'Conversations,' Dr. Dan Soder and his guests delve into the controversial practice of price gouging, particularly in the wake of natural disasters. They explore the economic rationale behind price increases, the ethical implications, and the public's negative perception. The discussion highlights the role of supply and demand, the importance of price signals in resource allocation, and the potential downsides of anti-price gouging laws, emphasizing the need for competition to naturally regulate prices and encourage entrepreneurial efforts in crisis situations.
Takeaways
- 🌪️ Price gouging often occurs after natural disasters when there is a sudden increase in demand and a decrease in supply for certain goods.
- 🛑 The term 'price gouging' is not just about high prices but is specifically associated with situations like post-disasters or life-saving medication shortages.
- 🚫 President George W. Bush equated price gouging to looting, indicating a strong negative perception among the public.
- 💡 Economists view price gouging as a market mechanism for allocating scarce resources to those who need them most during emergencies.
- 🛒 The public often perceives price gouging as exploitative, taking advantage of vulnerable consumers in desperate need of goods.
- 📈 Price increases are sometimes necessary to cover the higher costs incurred by suppliers to meet demand in disaster-stricken areas.
- 🚚 An example given in the script describes individuals who bought ice at a low price and sold it at a high price after a hurricane, which was seen as price gouging but also as a response to market demand.
- 📉 Laws against price gouging can deter suppliers from increasing supply, which might be necessary to meet the increased demand after a disaster.
- 🤝 The script suggests that competition, rather than legislation, could be a more effective way to control prices and ensure supply.
- 🏥 The case of daraprim highlights the role of competition in preventing price gouging, as the lack of it allowed for a significant price increase on a life-saving drug.
- 📉 The script points out that social pressure and the potential for loss of shareholder value can influence corporate behavior, suggesting a role for consumer activism in preventing exploitative pricing.
Q & A
What is the common public perception of price gouging after a natural disaster?
-The common public perception of price gouging is negative, often infuriating many Americans, as it is seen as taking advantage of people in vulnerable situations, such as after a natural disaster when essential goods are in short supply and high demand.
How did President George W. Bush describe price gouging in the context of Hurricane Katrina?
-President George W. Bush referred to price gouging as the moral equivalent of looters, indicating a strong disapproval and associating it with unethical behavior.
What is the economic perspective on price gouging, as opposed to the public perception?
-Economists approach price gouging differently, seeing it as a market mechanism for allocating scarce goods to those who need them the most during times of high demand and disrupted supply chains.
What is the term used to describe a situation where demand for a good is inflexible, and why is it relevant to price gouging?
-The term is 'inelastic demand.' It is relevant to price gouging because it describes a scenario where people will still demand a good even if its price increases significantly, such as in emergency situations.
Why did the students in the script sell ice at a high price after a hurricane?
-The students saw an opportunity to meet the high demand for ice following a hurricane, which had caused power outages and increased the need for ice to preserve perishable goods and medicine.
What was the outcome when the students who sold ice at a high price were arrested?
-Their arrest led to a negative outcome, as it discouraged competition and potentially prevented the market from self-correcting, which could have resulted in lower prices and better allocation of the scarce resource.
How do supply and demand shocks caused by natural disasters affect prices?
-Natural disasters can cause an increase in demand for certain goods, like ice or gasoline, while also disrupting supply chains, leading to a classic supply and demand shock that increases prices.
What is the role of price signals in conveying information about the needs and scarcity of goods in a market?
-Price signals communicate the relative scarcity and urgency of goods in the market, guiding consumers' purchasing decisions and encouraging suppliers to allocate resources where they are most needed.
Why do some people argue that arresting price gougers after a disaster might not be the best solution?
-Arresting price gougers can discourage others from providing much-needed goods to disaster-stricken areas, potentially leading to a worse-off situation for those affected by the disaster due to a lack of available supplies.
How do price gouging laws, which restrict price increases after a disaster, impact the market and the availability of goods?
-Price gouging laws can limit the incentive for suppliers to bring goods to affected areas, as they may not be able to cover increased costs or make a profit, which could ultimately lead to less availability of essential goods.
What is the significance of competition in preventing excessive price increases after a disaster?
-Competition is crucial as it encourages more suppliers to enter the market, offering goods at lower prices, which can help drive down prices and ensure a better allocation of resources to meet the increased demand.
What was the daraprim case, and how does it illustrate the issue of price gouging in the pharmaceutical industry?
-The daraprim case involved a significant price increase of a life-saving drug from $13.50 to $750 per pill due to a lack of competition. It highlights the potential for price gouging when there is no alternative available, and the importance of competition in keeping prices fair.
How can social pressure and public opinion influence a company's pricing decisions, especially in controversial situations?
-Social pressure and public opinion can significantly impact a company's decisions, as seen with United Airlines' stock price drop following a controversial incident. This can serve as a deterrent against perceived price gouging or unethical practices.
Outlines
🌪️ Introduction to Price Gouging Debate
The script opens with a discussion on the controversial practice of price gouging, particularly in the context of natural disasters. It introduces Dr. Dan Soder and Ashley Lynn, who will explore the topic from both economic and ethical perspectives. The conversation aims to clarify misconceptions about price gouging and its impact on society, highlighting the difference between public perception and economic theory.
🛑 The Ethical and Economic Ramifications of Price Gouging
This paragraph delves into the public's negative perception of price gouging, comparing it to looting, and the economists' alternative view, which sees it as a market response to supply and demand imbalances. The discussion includes the example of a group selling ice at inflated prices after a hurricane, emphasizing the role of price in allocating scarce resources to those who need them most.
📈 Understanding the Market Dynamics Behind Price Gouging
The script explains the market forces at play during price gouging, focusing on how disasters affect supply and demand, leading to price increases. It clarifies that it's the disaster, not the seller, that causes the price rise and discusses the importance of price signals in conveying information about resource scarcity and need.
🤔 The Ethical Dilemma of High Prices During Crises
This paragraph examines the ethical considerations of allowing high prices during emergencies, questioning whether it's right to profit from someone else's misfortune. It also explores the potential benefits of high prices, such as encouraging supply and discouraging unnecessary consumption, which can help allocate resources more effectively.
🚓 Legal and Social Consequences of Price Gouging Laws
The script discusses the existence of anti-price gouging laws in many states and the challenges of defining 'reasonable' price increases. It uses the example of the North Carolina ice sellers to illustrate the potential negative consequences of such laws, including deterring entrepreneurial efforts and potentially worsening the situation for disaster victims.
💡 The Role of Competition in Mitigating Price Gouging
This paragraph highlights competition as a natural counterbalance to price gouging, suggesting that in the absence of legal restrictions, market competition would drive prices down. It contrasts this with the situation where a lack of competition, as seen with the daraprim drug case, can lead to significant price increases and exploitation.
🌐 The Broader Implications of Price Gouging on Market Behavior
The final paragraph wraps up the discussion by considering the broader implications of price gouging on market behavior and consumer responses. It touches on the role of social pressure and the potential for companies to adjust their behavior in response to public opinion, as well as the importance of understanding the complex interplay between market forces, competition, and ethical considerations.
Mindmap
Keywords
💡Price Gouging
💡Natural Disaster
💡Market Economy
💡Elasticity of Demand
💡Entrepreneurial Effort
💡Scarcity
💡Supply Shock
💡Competition
💡Moral Equivalent
💡Risk
💡Profit
💡Regulation
💡Monopoly
Highlights
Dr. Dan Soder introduces the topic of price gouging and its ethical and economic implications.
Ashley Lynn, a senior at Troy University, discusses her research on price gouging and its effects.
Price gouging is defined as the act of raising prices significantly after a natural disaster or for essential medications.
Economists view price gouging as a market response to increased demand and decreased supply, rather than exploitation.
The conversation explores the public's negative perception of price gouging, comparing it to looting.
Ashley Lynn argues that price gouging can be a way to allocate resources to those who need them most during emergencies.
An example of price gouging in North Carolina after a hurricane is presented, illustrating the entrepreneurial response to disaster.
The discussion highlights the importance of price signals in conveying information about supply and demand.
Price gouging laws are critiqued for their ambiguity and potential to discourage entrepreneurial efforts in disaster response.
The role of competition in moderating prices and encouraging supply is emphasized.
The impact of price gouging on consumer behavior, such as making more thoughtful purchasing decisions, is discussed.
The conversation considers the ethical implications of profiting from disaster and the role of social pressure on businesses.
The case of daraprim, a drug with a significant price increase, is used to illustrate the dangers of a lack of competition.
The importance of allowing free market competition to prevent exploitation and ensure fair pricing is stressed.
The program concludes with a reflection on the complex nature of price gouging and the need for a nuanced understanding of market dynamics.
Transcripts
the opinions expressed on this program
represent the viewpoints of individual
authors or contributors and do not
necessarily reflect those of Troy
University
[Music]
hello and welcome to conversations I'm
your host dr. Dan Soder of the Johnson
Center for political economy at Troy
University
it's a scene we've all seen unfold
before a hurricane or ice storm or other
natural disaster strikes a community
disrupting power transportation and our
market economy items that are normally
available are now in short supply and
great demand and then someone starts
selling gas or ice or portable
generators but for sky-high prices this
is commonly referred to as price gouging
and infuriates many Americans President
George W Bush once referred to price
Gaucher's as a moral equivalent of
looters after Hurricane Katrina
economists though approach this matter
very differently and our assessment of
the effects and the efforts of price
colleges affect how we may want to
evaluate the accomplice activity joining
me any conversations today to talk about
the economics and ethics of price
gouging our doctor Dan Smith associate
director of the Johnson Center in Troy
University student Ashley Lynn welcome
back to the show Dan and welcome to the
show Ashley before we get started
Ashley why don't you going to take a
moment to tell us a little bit about
yourself well I'm a senior here at Troy
University double majoring in economics
and math and in the fall I'll be
starting my ph.d program in economics at
Florida State which I'm very excited
about and we're very happy for your
opportunity to go on and study at
Florida State and I just want to
mentioned to viewers that you last year
you won a prize in our sir our College
of Business undergraduate research fair
and for your paper on this topic which
is why we're having on here today to
talk about this this topic right yes sir
so let's get started here and let's make
sure we make sure everybody's completely
aware of exactly what we mean here we're
talking about price gouging because
there could be some clarity sometimes
people will use the term soma casually
or referring to just a price in the
supermarket is price gouging but there
are such things as price gouging laws
and so forth and it refers to a little
somewhat more restricted activities so
tell us a little bit the type of
activity that we have involved here okay
well to me the things that really
signify price-gouging would be higher
prices obviously but they normally come
after a natural disaster
so hurricane tornado things like that or
in the case of like a medication that is
required for survival
some people do consider higher prices on
medication of that sort as price gauging
price counting as well in other people
will commonly refer to this in a
situation of that a great need for the
products a connoisseur of prefer the
term inelastic demand it maybe it's a
little more antiseptic but it also has a
little bit more of a concrete meaning
meaning that well what exactly would
that mean that yeah yeah so all that
means is that people have a really
inflexible demand for that good they
really need this good it's emergency
situation they're they're vulnerable
because they need it could be they need
medicine and after a disaster they may
need ice to keep that medicine cold they
might need gas to put their their tanks
so they could take their their pregnant
wife to the hospital it means they just
have an absolute demand for this good
and that's why people have such this
such a such so repulsed by price gouging
is because they perceive it as taking
advantage of these people in these
vulnerable circumstances where you're
still going to buy the good even if it
goes up in price or even if it's so much
more expensive than it would be
otherwise so and so let's started
getting to this whole issue of the
popular dislike for price gouging or I
mentioned President Bush's comparison of
price gouging to looting now I
understand what looting is and I
understand what what's bad about looting
because you're actually stealing from
people are stealing from stores in the
aftermath of a disaster now what exactly
our price gougers doing and because it
doesn't on the surfaces are they doing
anything that actually this is the same
as looting I would say definitely not
because you know even
when people are considering something
being price gouged they're actually
voluntarily buying that product so
they're not being forced into anything
so even if they do buy it this by their
own choice and so I think that's
something that should definitely be
taken in consideration if they think the
price is too high and it's not a
necessity at the time then they don't
have to spend the money they can wait
until the prices drop back mm-hmm but I
think when people have such a bad
outlook on it is it's because of some
people in are like a vulnerable state
and so they think people are being taken
advantage of when really price gouging
is the markets way in the sense of
making sure that goods are allocated to
who needs the most hmm because if
someone had needs insulin to be iced and
their power's out and that's the only
way their insulin is going to stay good
they're gonna value that ice a lot more
in that situation than a day before when
the ice was just used to keep their
drink cold now that I saw you has
skyrocketed to that individual person so
me who I don't need insulin so that ice
is in the style to thing that's the
person who does need it and so price
counting in it since the higher prices
the person that meets it more is gonna
spend the money on it more and it's kind
of fixing itself in that manner mm-hmm
so just to offer again another concrete
example of this activity professor Mike
Munger tells a is written a story
telling of a instance in the aftermath
of a hurricane in North Carolina from a
few years ago that I think really really
gives a very concrete case of price
gouging activity so if he could dust
tell us a little bit about Mike muggers
okay Sarah okay well it's pretty simple
there was four guys who witnessed I
think it was a hurricane and so they
knew that there was a need for ice
because ice had been sold out and they
were in an area that hadn't been harmed
as much so they had access to
I struck that could keep it cold so they
rented out the truck
they bought 500 bags for about under $2
apiece mm-hmm it was higher close to $2
and then they sold it to people for $12
a bag once they got to Raleigh mm-hmm
and they ended up being arrested and
people cheered and applauded them which
it's kind of crazy because everyone was
made worse off in that situation and I
think some people don't take into
account that $12 seems like a lot but
they also had to pay the price to cover
the ice-truck they had to pay the gas to
get there they had to pay for their time
compensation to make it worthwhile even
though it is the goodness of their heart
it's not really fair to put someone off
make them worse off to help someone else
and so then once those crosses were
covered then they charged the higher
price but in the long run if they
wouldn't been arrested it would have
created competition and the prices
probably would have gone down and so
being arrested really was probably the
worst solution that could have happened
and that's an area so you say you these
people took an entrepreneurial effort an
action they saw the opportunity they
went there and I might add to the story
a detail I remember from this case was
that they actually had to take chainsaws
with them to cut some trees and branches
that were blocking the highway so that
they could get to Raleigh and get in
with the ice so that they took a lot of
effort a lot of action to go there to
deliver ice and they made it available
and they were selling it and then they
got arrested and what will get into the
legal part of that in a little bit but
so now we have a good sense of what
we're what we're analyzing and we know
that this is draws a lot of negative
reactions from people but let's get into
this action in a little more detail
because to really assess it we need to
think about like what are some of the
components of what's going on here now
one thing to first note is people are in
distress after her
or after a earthquake after a disaster
or in that case even in the case of a
pharmaceutical if they have a disease
but did the price Gaucher's do anything
to put them in harm it's important to
reflect on this I think economists
really take a hard-nosed approach to
this and saying well actually it wasn't
the the gas station owner it wasn't the
person selling the ice that made the
price rise it was the disaster itself
disaster itself is what caused the
demand to increase usually demand for
ice is going to increase after natural
disaster powers out people don't have
access to refrigeration so it's going to
cause an international increase in
demand and on the supply side oftentimes
the natural disaster will disrupt
traditional supply lines and you won't
be able to ship the normal goods in
through the traditional means as quickly
so you may have a supply shock and a
demand shock and those natural
conditions are going to get a you're
just using basic supply and the demand
analysis are gonna cause the price to go
up for those Goods so it's important not
to blame the actual person raising the
price they're just conveying the message
that that the conditions of supply and
demand have changed and therefore this
good is more scarce more people want it
the price the market price has to go up
you know I think that's an important
thing to keep in mind here because it's
not like a case where if you could
imagine like a doctor poisoned their
patient so now they need the antidote so
you've poisoned them and now it's like
oh how much are you gonna pay are you
willing to pay for the antidote because
you've already taken an action to put
them in a situation where they need the
the antidote to the poison and that's
clearly not what's going on here right
mm-hmm and and I think it's really
important to reflect on how like gas
station owners actually charged for the
price of gas that they sell they'd base
it off of replacement cost so where
people say it's unfair as they see well
the price of gas is $2 today before the
storm then the day a storm it jumps up
to $8 well that definitely seems unfair
it's the same gas well the gas station
owner is saying okay what's the cost to
fill my my tanks with gas again so I can
provide it to two more customers
and if that cost goes up well to refill
there the gas station tanks they need to
let the price of each gallon they sell
go up in order so that they can replace
it in the aftermath of a disaster I
think also provides a good illustration
of a point we make in economics often
quite generally or dryly whether the how
knowledge in economics is very dependent
on space and time or plate you know
place contingent and if you could
explain what this means and you know how
it is that time and place matters for
for goods I think one of the easy would
be a bottle of water and I went to buy
it right now leaving the set I'm not
paid two dollars max and that would be
my convenience thing of just going into
a store but if I get lost in the desert
and I've been in the desert for a day or
a day and a half without any water and
someone comes up to me I would probably
be willing to pay way more than two
dollars actually I know I'd be willing
to pay way more than two dollars because
that that place and time that water is
like my life one and then I'm gonna
value it obviously a lot more and the
time and place mattered about how much
about you did right now I don't value it
that much but in a different time
different place the desert I value it a
lot more so that's the same thing in a
natural disaster I know before it you're
you don't know what harms let me cause
to you so every day you know things that
you use like food eyes your refrigerator
you probably don't even think about them
mmm but once you lose it you start to
value them a lot more
so that time and place has changed your
situation has changed and then so your
evaluation is going to change based off
that in it's important to point out that
you know when the power was out in
Raleigh North Carolina after the
disaster you know that their power might
be out for two or three days when people
got the ice is very important getting
the ice in another week when the price
might be back to two dollars isn't
really what you need you need the ice
where you are
and you need it and that that's
everything a big part of what creates
value in economics right it's it's not
just what the good is but when and where
you have it and do you have it when you
need it and in the form eugenia right
yeah and I would add in that burn from
outsider's perspective it's really hard
to assess what that time in place is
without that price signal because
Outsiders and you can see this through
through in-kind donations we see this
with with natural disasters all the time
is that people donate goods that
actually people in the disaster area
don't really need so to know
specifically what those people in that
disaster circumstance need at that time
you really need the price signals to go
up and down to say okay we really
desperately need this and companies like
Walmart have gotten really efficient at
that combing through sales data finding
that of all things people prefer
strawberry pop-tarts after a natural
disaster so they you know they stock up
water and they stock up strawberry
pop-tarts and and other items that they
know customers were going to want
following a natural disaster so you you
can't we out the people not economists
should be very careful about discounting
the importance of that information
conveyed through the price system in I
think it's just an important role that
the prices are providing there because I
mean I don't let's go back to the
example of the the young college
students from the enterprising college
students from North Carolina now maybe I
don't know if $12 was actually going to
cover all of their cost or maybe allowed
them to make some profit and I mean I
just for one since we could say they
might be entitled to earn some profit
because they came up with this clever
idea to go ahead and do something but
even if it does involve some profit
would we would people have been better
off if they had sold it for good is if
they've been selling their ice at a
price that wouldn't allow them to make
any profit I mean this is this is that
high price even if it's above the cost
level of cost still play an important
role I think it's good to always step
back and ask yourself is it good to take
away someone's best option even if it's
an option that you do not agree with and
that can be very hard depending on your
own personal beliefs and morals which
will change depending on the person
that's very subjective and it can be
easy for us to say no that shouldn't be
allowed because it's not the best option
to us and so we're not fully considering
it and I think that you know the price
might seem a little unfair but in the
long run where was it twelve dollars or
ten dollars however much they charge for
the bag of ice at the end of the day
there was people who really needed that
they responded to knowing that they were
out of ice so they were taking the role
stepping up trying to give a service and
yes like I might say it's unfair but
people that needed ice got the ice and
at the end of the day what was provided
what was needed was provided and so I
think the end of the day they got what
they needed and two dollars in the
scheme of things isn't enough to arrest
someone like or keep people from having
it because you subjectively didn't agree
with what it being sold for anything is
similar you might need a very high price
like that to make people stop and
realize hey that ice is really expensive
and it really is the markets way of
trying to say you better have a really
good reason for using this ice right I
know that in the same article they
mentioned hotel rooms mm-hmm in a
natural disaster especially hurricanes
and if you live in an area where you
know you can be in flood danger a lot of
people move out and so hotel rooms
around the area skyrocket sometimes and
people think that's bad thing like can
you imagine making these people not be
able to afford a safe place to stay but
in reality I know that some family
support for example could afford more
than one room at a normal cost so they
might get
for the ideal of comfort hmm when it's
very practical for for people to stay in
a hotel room and there's two beds in
there but when the price goes up even
the wealthiest person is going to step
back and think is that necessary like do
I need to pay that extra money for
comfort or in this situation do I just
get one room do we all stay in there and
then that opens up a room for someone
else and so the higher prices also makes
people I think realize how much money
they're spending per se they don't
overspend and over buy they buy more
what they need because the price is
higher so they're having to recognize it
more and so then it leaves more for
other people which is basically
allocating goods people is Marcus way of
saying this isn't a day for to be
comfortable this is a day to get
everybody out of harm's way and make
sure that everybody needs to get out of
harm's way as a hotel room there's
another element of the assessment where
we go to assess through the activity of
price couches after a disaster to take
into account and that is the fact that
those gentlemen in North Carolina could
have just stayed at home and continued
to watch its telethon a hurricane
coverage on their television he's there
had been affected by the hurricane they
probably still had power they could have
watched what was happening on TV would
it be wrong for somebody to sit back in
their the comfort of their home and
watch TV yes so I actually use examples
like this in class when I discuss price
gouging and what I usually do is I find
some recent example of price gouging
going on preferably in the southeast
region so it sits nearby that students
could theoretically get in a car and
take deliver eyes to that area and I
asked at a price of one dollar bag how
many of you would rent a truck and take
a few days off of from college or work
drive this truck over and deliver eyes
this area that needed it
no hands are raised and I keep raising
the price to say at $2 $3 $4 and once I
started getting up to ten fifteen dollar
range then people are served well per
bag that that'd make it worth it for me
to take that trip
but in what's ironic is those people
that do that are the ones doing the most
to help out these disaster victims
they're the ones being entrepreneurial
taking the risk it's not guaranteed I
mean I certainly wouldn't know anything
about renting a refrigerated car and
trucky nice a couple states over and
taking chainsaws you wouldn't even know
if you're able to get in so there's
definitely an element of risk in there
so we're targeting feathering the people
doing the most to help these people when
most of when we certainly never tar and
feather the person that just sits at
home and says you know what I'm not
going to do anything in fact a lot of
people probably have some spare ice and
their their fridge during natural
disasters and and very few of us get off
the couch and and deliver to that area
well that seems worse offering ice at no
price seems even worse than offering ice
at twelve fifteen dollars a bag so it
seems very odd from a philosophical
sense that that most of our criticism is
against the people that are doing more
than anything than the rest of us so I
think we've offered a good number of
good considerations things to think
about here but still many people think
that there's something wrong with this
charging an excessive price after a
disaster and so as a result we see laws
get passed about 34 states I believe
have a law restricting some form of
price gouging
now does Alabama have such a law and if
so it would seem like there's been some
ambiguity and how we've been trying to
exactly discuss price gouging here how
would you go about defining price
gouging for for a law for instance I
know that in Alabama you can raise the
price it's price gouging if it's raised
more than 25 percent
unless there's are reasonable calls to
justify higher than 25 percent but the
problem with that is reasonable is very
projective what's reasonable to me might
not be reasonable to you might not be
reasonable to dr. Smith so how do you
define
in that line like if I'm a business
owner and I'm presented with this law
and I think okay well this will be 30%
is fair and then I'm in trouble with the
law
but I could say hey well that was
reasonable in my eyes like how do you
make that it distinct and I think that's
a huge issue because when you're talking
about laws like this you can't really
leave it so subjective that's reasonable
like calls for more than that like you
have to go in more detail because then
there's really we all could think of
something different and then I might be
punished but y'all might not but I could
truly believe that I was being
reasonable in the situation hmm so that
causes people to not want to act at all
because they're not gonna want to put
themselves in the case of getting
arrested like the people so it's better
for them just not doing anything and
then people will become worse off
because of it and to me that's the more
tragic outcome then you really just
think of that very much in terms of the
general incentive for entrepreneurship
for development ever really whether we
talk about whether investing in a
developing country where property rights
are less secure or you've got corruption
and or whether you're acting in the
aftermath of a disaster uncertainty is
not a good for economic activity is that
definitely not mm-hmm yeah and I wanted
to kind of stress on the supply side
also if you put in a price gouging law
that says the price cannot rise like
25-30 percent above its normal everyday
price well that prevents the the usage
of like paying workers overtime to like
like let's say Hurricane Katrina knocks
out some offshore oil refineries and you
know hurts the oil supply there's
increased demand for oil well how does
the gas station get more oil well you
got to pay truckers overtime to ship the
oil and you have to pay oil rig workers
to work harder you got to pay the people
at the oil refineries to take out more
production well
you can't afford to do that if your
price is and a lot of do it so to rise
high I know so it precludes the usage of
you know emergency measures
to drastically increase the supply to
meet the the needs of the people in that
disaster area would there be an
alternative to passing laws to try to
keep of the prices from from going up
too much after a disaster
absolutely it's competition and going
back to the Raleigh incident yeah they
would not have been arrested then more
people would have caught on him and like
hey that's a good idea you know they're
offering eyes they might be making a
slight profit well we can go and I can
sell it for eleven dollars and still
cover my cost and make an even smaller
profit and then people are going to pay
11 versus 12 and then after that some of
them say well what about $10 then
they'll really buy mine and so when you
do this project they're getting driven
back down because that's the beauty of
competition the cheapest price for the
same good in the same convenience is
what's going to be paid for but if
there's no competition you literally can
pay or charge them as anything and
especially a case like natural disasters
when people need the good so competition
is actually the perfect solution because
then it's just the markets way of
getting it down to a lower price that's
better for everyone and then everyone's
getting more of the good as well mm-hmm
in high prices when that natural
disaster causes that price to increase
that's going to be the number-one
signals say we need more competition we
need more entrepreneurs working to solve
this and that's going to allow the
market mechanisms to work to drive that
price back down in that also ends up
driving businesses to think about
recognizing the next time in a disaster
is looming hurricanes approaching to
realize if they remember what happened
to prices after the case in the last
disaster recognized hey if we are excess
or ice available after this hurricane
that we could actually sell it for a
nice profit and the prices help further
to help prepare our for the neck
disaster make sure that Walmart takes
steps to figure out what it is that
people need they'd like to eat after a
hurricane and make sure they've shipped
at it I mean absolutely no we mentioned
the briefly earlier one other example
where price gouging sometimes is brought
up and that's with regard to
pharmaceuticals there is a case of a
couple of years ago of a drug called
daraprim and that came to a lot of
national attention to the people thought
of as a case of price gouging as well so
you could refresh our memories what was
going on with this case of daraprim well
I regionally the peel cost about a
little under $14 per pill mm-hmm and
then it's skyrocketed to 750 dollars per
pill which was a $5,000 price increase
which is huge and that's normally a lot
bigger price increase than we see
normally when we're talking about price
gouging and those topics but that lead
because there's no competition right now
to the drug and it's not like I wear the
most of us can live without it this is a
drug that literally holds people's lives
in its hands pretty much and so honestly
the price probably could have been
raised it's very valuable and I'm not
saying that huge price increase is
something that I agree with is are adult
but they saw the room where the price
could increase because people needed it
their lives depended on it they also
realized that there was no competition
so that person either had to choose
between possibly dying from not taking
it or buying from them because there was
no other option and they took it mmm and
so that was a lot of that yeah and I
think important for this case is that
the competition was artificially
restricted by the FDA approval process
they prove a drug and in this case they
didn't allow generic competition so this
drug maker literally had a monopoly on
this particular drug and the government
was was enforcing that monopoly so it
kind of highlights the importance of
allowing a free market allowing
competition if you restrict that
competition then supply people supplying
goods that have a nonetheless demand
can exploit customers though I would add
in where we're this is right after a
united crisis United Airlines recently
kicked a passenger off a flight and they
were drugged off the flight and someone
took a video of it and customers are
very irate and their stock prices has
plummeted I think it went down about 4%
already which represents millions of
dollars in shareholder value even a
company like this could lose shareholder
value if customers get irate enough and
send it around in social media and say
we're gonna use social pressure to fight
against this this company so I think
companies do keep this in mind when
they're making plans yeah I think that
the daraprim example certainly does just
reinforce that whole point of
competition it was a lack of competition
there in that case well well thanks very
much for coming on a talk about this
complicated and controversial topic and
helping explain to us a little bit more
what all economists think about this
topic and thanks for joining us join us
again next time for another
conversations
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