Coase Colored Glasses
How do you respond to the following letter?
PRICE GOUGING IS GOOD
Someone please tell Illinois Attorney General Lisa Madigan that gasoline price gouging is good. It discourages those who rush off to the gas station at the slightest sign of trouble to load up on motor fuel in anticipation of higher prices. These hoarders ought to pay a high price for taking supplies away from others. Without the hoarders, the sellers would have more time to increase supply which would moderate prices from what they would otherwise be.
I doubt she will lighten up. There is political advantage to be gained, even though it makes it more difficult for the supply response to take place.
If you do not believe it is politics, just think back to 1998 and 1999 when the inflation adjusted price of gasoline was at an all time low. Were there any TV expose’s or Congressional investigations into the way motorists were price gouging the oil companies? I do not remember any.
And where was Lisa Madigan? Was she skipping out on her economics classes?
posted by randytsimmons @ 9:17 AM
4 Comments:
In a free market setting, price gouging will only occur if it is efficient. Therefore who cares whether "pric gouging" is good or bad? Let the market decide.
Price gouging will occur when ever the owner of the product can make money by doing so. This includes if the public is misinformed. There must be a mechanism in place to keep business owners honest. Gas shortages are happeing because of hording. If hording allows gas companies to raise prices then they will encourge it, and make the extra money off the public that they were able to mislead. We need to make sure the business owners can not profit by a misinformed public.
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