Price Gouging

“We don’t have any…!” Fill in the blank.

People are stocking up on things, fearing that we will be stuck in our homes, under quarantine, without essential supplies.

Some hoard toilet paper. A popular internet video features someone driving up to what appears to be a drug dealer but is really someone selling toilet paper.

When it became hard to find hand sanitizer in New York, Governor Andrew Cuomo said the state would produce its own, made by prison labor.

Yet, in-demand items like masks and hand sanitizer can still be found. It’s just that we have to pay an inflated price.

People on social media are outraged by that. They post pictures showing stores charging high prices, like $19.99 for a can of Lysol spray and $22.99 for a 12 oz bottle of Purell.

We’re encouraged to report such high prices to the government because “gouging” is illegal. New York has an online “price gouging complaint form” that people can fill out if they are charged “unconscionably high prices.”

“On my watch, we will not tolerate schemes or frauds designed to turn large profits by exploiting people’s health concerns,” said New York’s economically clueless Attorney General Letitia James. “Some people are looking to prey on others’ anxiety and line their own pockets.”

Well, yes.

People always look for ways to line their own pockets.

But what politicians call “gouging” is just supply and demand. Prices rise and fall all the time.

Most state’s anti-gouging laws never even say exactly what is “unconscionably excessive.” That invites abuse. Vague laws give politicians dangerous power. They can use anti-gouging law to punish any merchant who doesn’t give them money or kiss their rings.

It seems cruel to charge customers more during a crisis, but when there are no laws against sharp price increases, people don’t experience long lines and shortages.

Think about what happens when stores don’t raise their prices: People rush to buy all they can get. The store sells out. Only the first customers get what they want.

But if the store charges more for items in extraordinary demand, people are less likely to hoard. Customers buy what we need and leave some for others.

Prices should rise during emergencies. That’s because prices aren’t just money; they are signals, information. They tell suppliers what their customers want most.

Entrepreneurs then make more of them and work hard to get them to the people who need them most. If “anti-gouging” laws don’t crush these incentives, prices quickly fall to normal levels.

Stossel in the Classroom contest winners explained that in a video.

Last week, some people bought lots of hand sanitizers and masks and then sold them on the internet. One couple boasted that they made over $100,000 reselling Lysol wipes.

They’re not bad people. Their actions allow people desperate for supplies to buy what they need, even if it’s at a higher price.

We’re supposed to stay indoors, so it’s good that we can get these products online. Then we don’t leave home and infect others.

Unfortunately, Amazon, eBay and Facebook, worried about accusations of “profiteering,” cracked down on resellers. The companies removed listings for masks, hand sanitizers and disinfectants.

This will only cause more shortages. Bigger profit was what encouraged people to sell online. Now no one gets those products until the market returns to normal.

In China, there was a severe mask shortage. That raised the price of masks and kickstarted production of face masks all around the world. A factory in France hired more people and raised its production of face masks from 170 million a year to half a billion.

The French company didn’t do it only because they want to help people in China. Extra profit motivated them.

Price “gouging” saves lives. In a crisis, we like to think that everyone will volunteer and be altruistic. But it’s not realistic to believe that all will.

If we want more supplies, we ask sellers to risk their money, their safety and comfort. (Sellers often travel long distances to reach people most in need.) Most sellers won’t do that unless they’ll profit.

Government should dump its anti-price gouging laws and let the free market help those in need.

17 thoughts on “Price Gouging

  1. John Stossel is my guru and I love his videos but I don’t entirely agree with this one. Yes, I support the guy who takes it upon himself to buy 20 generators and drive them 600 miles to a devastated landscape but no, I don’t support big box Menards raising prices on bleach and other products that are sitting on their shelves already for people who are panicking over the Covid-19 virus (just in today’s news in Michigan). Menards is not taking any sort of risk bringing these products into their stores. Not supply and demand. How about lunacy and greed 😉 Keep up the amazing videos!

  2. Problem is in TN a family bought all the handsantizer, cleaning supplies, rubbing alcohol, Peroxide from all of tn, southern KY, northern Georgia, northern Alabama, northern Mississippi. Using a GPS devices hitting every store that sells them causing a shortage just to sell at high price by causing a shortage.

  3. I agree with you John Stossel, however I’m not sure at the moment of the situation when prices are raised higher than some people who are in need of certain items can afford to pay? Do they just wait for those items to be re-stocked at wherever they normally purchase them from, at the regular price? What if it’s something they need that affects their health? I’m always learning and I appreciate your very informative videos.

  4. If the stores enforced a reasonable limit on sales , which they can do, the buying of all the tp in stock would stop.

  5. The problem with store limits is that people go from store to store. Yesterday I met a lady while waiting in line to get into the store who had already been to three other stores.

    In California stores are afraid to being charged with Price Gouging, so they don’t raise their prices. But if they did, maybe some people would think twice about buying a two year supply of TP; and maybe they would incentivise the factory to produce more.

    Also, just think about the costs of standing in line, and going from store to store.

  6. John- I bet you have all the toilet paper you need ~ signed a full time registered nurse who heeded the suggestion to hunker down and not gather is large crowds on my only day off.

  7. Instead of price gouging why not limit the numbers of items someone can buy like 2 loaves of bread and 1 package of toilet paper. It’s being done here now in Canada and it works. A lot of people like me don’t know when and if we are going to get paid and having prices at the lowest possible is better.

    1. Limits only work per transaction, not as an overall limiter. I can still by 100 packages of toilet paper I don’t need with limits. I would just have to do it over several transactions. If I was charged significantly more for that toilet paper I would then only buy what I need and not hoard.

  8. Its Black Friday every day right now for the grocers. They’re going to drag this madness on for as long as they can. Their virtuous statements to the press pleading with customers not to hoard not withstanding…. as others have said, they could easily stop it. They have no interest. It is boom times for the grocers.

  9. Yeah there’s a HUGE difference between raising prices on your own inventory to reduce hoarding, and buying up all the inventory around to profit from an artificial supply problem. The first is ethically sound (though it may make some angry) the second is completely unethical. They didn’t redistribute to those who were unable to get it to begin with. They were forcing themselves into an already successful distribution link, and thereby making it worse, not better.

    1. If the store was empowered to raise the prices to begin with, then the second group would be less inclined to buy out all the inventory.

  10. Usually agree, don’t this time. In the northeast in October/November there is a “run” on snow fighting equipment. In April, they’re all “on sale”. That is market based supply and demand. What is happening now with the demand for _____ is greed based on fear.

    1. Dirk, why is there a “run” in October/November? Customers FEAR it will snow soon and they lack the tools to address it. There is less FEAR of snow in springtime, so lower prices can incentivize customers to buy.

      1. Nope, not fear. Sensible preparation based on the knowledge of potential weather events. Probably using the word “run” might lead one to believe that people are standing in line for snow shovels and buying every one they can. Not the case. In fact, you may purchase a shovel or blower and deploy it for several years.

  11. If companies can price gouge they will work very hard to make more products, then the supply will go up and the price will go down. Also, if people buy too much toilet paper or hand sanitizer because they are afraid that it will all run out and it does, then they can sell it those without it for a good profit. It there were laws against price gouging someone might keep the stuff just in case they will need it later. Then the people without it will not get it.

  12. John is 100 percent right! Supply and Demand is the way to manage scarcity. Read Thomas Sowell’s Basic Economics and find out why what is called price gouging, is really a very acceptable economic way to manage these resources.

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