Thursday, December 1, 2005

The price-gouging myth

Let me state this strongly enough : there is no such thing as price-gouging. It is anti-capitalist propaganda, given to us by people who should know better, and some who know better.

Let me put it this way. If the government was in charge of a high demand situation, they would RATION everything. Would anyone complain then if they didn't get what they wanted ? I'm pretty sure most of them wouldn't. And yet when the free market preserves the information about the value of the product, people rage against "price gougers".

What could "price gouging" possibly mean ? Price is a piece of information. It tells us what people agree upon on being the monetary value of a product or service in a given context. If the price is too high, then the seller won't be able to sell, and thus make maximal profit. If the price is too low, then there will be shortages and once again maximal profit will not be attained. So a rational seller has no interest in setting a non-rational price. "Price gouging" can therefore only mean the presence of an irrational seller.

As for the oil industry, you'd have to be an idiot to think that an industry within a market with high competition and low profit margins could possibly act irrationally and stay in business.

Please, if you don't understand basic economics, morality or politics, don't talk about it. You only make people like me mad.

6 comments:

Aaron Kinney said...

This is true. Price gouging in a competitive market is bad for business. And regarding the oil prices, we have very well understood factors that led to the price hikes. Natural disasters, an increase in consumption, the lack of increased production capabilities, etc... all led to the high oil prices.

Francois Tremblay said...

This is, of course, a rerun from Goosing the Antithesis. I just thought it fit well with this blog.

Niels said...

I totally agree with the principle you lay out. I'm not sure if it applies to the current situation of oil however. The oil companies recently made the biggest profit ever despite 'disasters', capabilities, etc.

UberKuh said...

You wrote:
"If the government was in charge of a high demand situation, they would RATION everything."

This is an excellent point, Ayn. :)

Delta said...

Oh c'mon, there isn't that much competition between oil companies. What's the startup cost for an oil company again? You have to buy rigs, refining, internal structure, politicians, etc. And there are only so many politicians to go around. If I see a high price at the pump that I know is inflated I sure can't start up my own company and expect to compete. If the price is too high, people can attempt to cut back on oil comsumption but in many locations (especially Red states), public transportation really isn't an option. Competition may work when we're talking about farmers and growing corn, but you have to understand that the examples they give in economics class rarely fit the real world.

Niels said...

Delta,

Why can't you start your own oil company. And tell us how the startup costs are fundamentally different from any other business.

Let me give you a hint:
http://dictionary.reference.com/search?db=*&q=monopoly