There’s No Such Thing Price Gouging

So argues Iain Murray today in Tech Central Station:

Rather than “gouging” members of the public, gas station owners are actually helping them by raising prices. This may seem counter-intuitive, but we have to consider how supply, demand and price interact. Normally, supply and demand dictate price, as is the case when gas prices spike. When price, however, is fixed, as would be the case if an “anti-gouging” law was in effect, then demand will outstrip the supply available. Shortage is the inevitable result. Gas would be rationed in some way, whether it is by some arbitrary legal fiat or by long lines at the pump. A black market is also more likely.

Moreover, as experience with rent control has shown, capping prices in times of scarcity also has the perverse effect of reducing the quantity of the good or service supplied. In other words, capping gas prices would actually lead to less gas being sold, as suppliers reduce the amount they are willing to sell in order to avoid loss. Shortages are therefore exacerbated. By contrast, anyone who tries “gouging” will find themselves with unsold supply and will be forced to lower their prices to offload it.

Nor is it gouging to raise your prices sharply in expectation that the next delivery is going to cost a lot more or not arrive at all. Lots of gas stations don’t have supply contracts with suppliers, but have to pay cash to get the next delivery. So if the next tank truck is going to cost twice as much as the last one, the gas station owner has to put up his prices now in order to pay for the next delivery. If the next delivery is going to be delayed for a week or two or three, then the owner needs as a matter of the common good to raise his prices sharply immediately in order to signal to consumers that they need to cut back their consumption immediately.

Steve Verdon made the same argument here days ago and they’re both right. Of course, the station owner isn’t raising prices in order to signal anything to the public or for any benevolent intention. It often just works out that way.

FILED UNDER: General
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Herb says:

    After reading this blog, I then went to Mr Murry’s web page and guess what? one of his sponsors is Exxon Mobile. Would you expect him to tell us anything different that might offend his Spensor?
    And in para 2, he states that “capping gas prices would actually lead to less gas as suppliers reduce the amount they are willing to sell in order to avoid loss” Therein lies the problem, the oil companies control the supply and can create an excess or shortage depending on their greed or reasonableness.

    Last night, Bill O’Reilly reported that the major oil companies reported a record profit of 33 Billion Dollars profit in the last quarter. Thats right, 33 BILLION.

    I may not be an economist or have sponsors like Exxon Mobile, but I sure know when I am getting it stuck me. And, I think most Americans feel the same way. A Cincinnati TV station conducted a survey and 74 % of the responders thought the oil companies were price gouging. I would like to see an explanation from the oil companies about the 33 Billion profit, but neither you or I will ever get one.
    About the only thing we can expect from the oil companies is another excuse to either keep the price up or to raise prices up further. And we will always have those who help the oil companies with more excuses by guys like Murray.

    And one last thing, now that the price of oil is below that prior to Katrina, will the oil companies reduce the .50 cent price increase they put on us right after Katrina hit. Bet Not!




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  2. James Joyner says:

    What page is it that’s sponsored by ExxonMobile?




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  3. Herb says:

    Murray is a Senior Fellow at the Competitive Enterprise Institute and they, (CEI) have a whole list of sponsors like Exxon Mobile. If you punch in on their website mentioned on the Murray website, you will find it. Thanks for your intrest.

    You will also see an ad by Exxon Mobile on the CEI site




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  4. john cooke says:

    if you believe that bullshit you believe in the Easter bunny and Santa Claus and that all good Democrats don’t tell a lie.

    john cooke




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  5. Herb says:

    UPDATE 9:02 EST 9/7/05

    The Drudge Report today (9/7/05) is reporting that the OPEC President has stated that oil production is now at 30.4 million barrels per day. He also stated that this is 1 million barrels per day above present demand.

    If this is true, then WHY is oil still at 65.00 plus dollars per barrel? You know what all the oil economist and oil companies say “Supply and Demand”
    With that production, the supply and demand excuse goes down the tubes.

    Now let’s see what new excuse they will try to BS us with.




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  6. rebarbarian says:

    Hey Herb: buy some oil stocks or buy a bike.




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  7. Herb says:

    Hey rebarbarian:
    I don’t think I will purchase any oil stock, you see, I am not the greedy yuppie type that you seem to be promoting. Your sarcastic remark indicates just what kind of person you are, insensitive, self centered, selfish, and to dumb to know when someone puts the screws to you. So you keep paying the gouge price and be sure not to say anything derogatory about those who have their hands deep into your pockets while you praise them. To bad you are the minority.

    By the way, I have a horse, would you like to have the exhaust?




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  8. McGehee says:

    Herb, you’ve been treating us to your horse’s exhaust throughout this comment thread.




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  9. Herb says:

    Thats OK McGehee, at least I have taken the time to check out facts that you have apparently ignored. Or Perhaps, you should check out the facts for yourself. Would that be to much bother for you to do? Just continue to insert you snide remarks and disregard how you are getting ripped off. I for one am not going to sit by idle and not continue to point out what damage the greedy oil companies are doing to our country and its citizens. I am an American who cares for his neighbor, What are you?




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