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.