A 2020 piece on Price Controls….
Many state’s actually have law’s against price gauging …
The piece deals with IF officals move to enforce price controls?
Will business move to cut supply driving prices even higher for less product offered to consumers?.
Case for Price-Gouging Prohibitions
Price gouging is generally the sale of a product for an excessive price during an emergency. There are several reasons underlying the outrage over price gouging and the laws prohibiting it, all of which seem to be moral in nature.
First, every element of a transaction viewed as a price gouge seems grossly unfair. Price gouging occurs in the wake of economic shocks, typically natural or man-made disasters. The vic- tims of the disaster are one and the same as the victims of price gouging. This is because disas- ters cause spikes in demand for certain essential products—products needed to mitigate or respond to the harm caused by the disaster (e.g., protective face masks) or to meet basic needs that have become more difficult to meet as a result of the disaster (e.g., food, water, electricity, ice). So the people hardest hit by the disaster have an immediately increased demand for the same essential products at the same time. Those most affected by the disaster thus see the sharpest demand spikes and resulting supply shortages, and are most likely to become the vic- tims of price gouging.
On the other side of the price-gouging transaction is the seller. The seller is typically (though not always) an individual or company not devastated by the disaster who has access to or the abil- ity to produce the products in high demand. The unharmed seller is the one who gains financial- ly from the transaction and is often seen as an amoral profiteer.
So, in the eyes of many, price gouging involves an amoral profiteer selling a vital good to a twice victimized person in dire circumstances.
Second, because price gouging typically has to do with necessities at times when those items are exceedingly scarce, price-gouging transactions can be seen as coercive. A justification for allowing sellers to charge whatever price they choose under normal circumstances is that trans- actions are voluntary—buyers can simply choose to walk away from prices that are too high. But in price-gouging situations, buyers are seen as not having a choice. The products are often nec- essary to meet people’s basic needs—health, safety, food, or shelter….
Supply Case for Letting Prices Rise
The counter to this moral case for price-gouging laws is primarily an economic one, namely that price-gouging laws set artificial caps or ceilings on prices and profits, resulting in lower total sup- ply of products that victims of disasters need the most. In our market economy, prices act as both incentives and instantaneous signals to both buyers and sellers. A market price that is much high- er than the cost to supply the product is an incentive for and a signal to potential sellers to sup- ply that product to the market. Conversely, a high price is a signal to and incentive for buyers to either reduce their consumption or substitute away from that good.
In economic terms, prohibitions against price gouging are price ceilings. They set a maximum price allowed by law. That price ceiling sets a profit cap as well. When laws prohibit prices from rising to the level that buyers would be willing to pay, prices lose some of their ability to function as an incentive for and a signal to buyers and sellers.
Unfortunately, price ceilings do not solve the underlying market condition of excess demand for limited supply. But price ceilings do suppress the price signal, limit the incentive to supply, and, as a result, reduce the total level of supply as compared to the level that would be supplied if prices were allowed to rise. This is because producers (individuals and companies) are willing to undertake more actions, make more investments, take on more costs, and take on more risk when the payoff, the price, is higher….
In the United States, the case in favor of price-gouging prohibitions has largely won the day. At least 38 states and the District of Columbia have laws against price gouging. This includes states across the political spectrum, from California to Texas. Others are considering adding them.7 In Ohio, a state without a specific price-gouging law, the attorney general has brought an action for alleged price-gouging conduct under both consumer protection statutes and uncon- scionability contract law theories.8 And while there is no general federal price-gouging law, President Trump invoked the DPA, a Korean War-era law provision that in effect prohibits hoard- ing and price gouging….
The price we pay to prevent people from entering into voluntary transactions at tem- porarily inflated prices is that more people are forced to go without.
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