Tuesday, November 13, 2012

Defending Price Gouging...Are You Kidding?

One has to wonder how James Stacey Taylor ever received tenure as an economics professor at TCNJ. In a recent Star Ledger Op Ed piece the good professor offered an argument in favor of price gouging, essentially arguing that suppliers will rush to meet demand for "gouged" products; suppliers would happily raise their prices to retailers who in turn gouge the public with higher prices. I'm assuming he believes that this sudden increase in supply will in turn help restore prices to equilibrium. Forgive me if I have his line of reasoning wrong, it is hard to make sense of something so nonsensical. Retailers would of course not reduce prices since their price structure must reflect their higher costs. We also would have to consider the elasticity of the product after all, since the demand for some products don't respond as well to price changes.

But more importantly, Professor Taylor seems to forget that most basic of economic ideas: opportunity cost. With incomes assumed fixed, and for the poor both fixed and limited, consumers would be faced with some horrendous trade-offs. Do I purchase fresh water, or do I buy food? Should I put high priced gas in my car, or pay the phone bill? With choices like this, it's understandable why economics is called "the dismal science."

Fortunately for us, price gouging is only successful in non-competitive environments where providers feel more free to raise prices. Thank God for the marketplace!! Price gougers pray on consumer with limited choices for goods. It would not be a stretch to see this is a monopolistic environment. Using the same logic Professor Taylor uses to justify price gouging, I suspect he'd have no problem with monopolistic practices as well.

In the aftermath of a natural disaster, should we be more concerned with the choices faced by consumers or whether or not businesses under conditions of imperfect competition can efficiently and profitably market their goods. The choice, to me, is pretty simple. Price gouging, especially in times of emergency, represents a dispicable assault on the body politic. I think the good professor needs to spend a little more time out of the classroom and join us here in the real world.

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