Comments on: Price Gouging

By: Longer gas lines, please « NYU Stern Economics

Longer gas lines, please « NYU Stern Economics — Sat, 10 Nov 2012 23:10:54 +0000

[...] links: MR, more MR, Cheap Talk, MoneyBox, and Posner (see esp the comment about ships in [...]

By: Chris

Chris — Sat, 03 Nov 2012 15:26:08 +0000

Jeff, supply lines were not cut. I live in central jersey. It would be very easy for me stock up on gas, generators, batteries etc. and drive up to north jersey and nyc to sell them. Of course, I’ll be arrested if I do that.

And I’m not sure if it is demonstrable that the gains from increased consumer surplus (are producers not people as well?) outweighs the gains from separating the high-values from the low-values.

And when you consider the opportunity cost of waiting in line for 4 hours for gas should properly be included into total cost of acquiring gasoline, can we really say there are gains in consumer surplus at all?

By: Thomas

Thomas — Wed, 31 Oct 2012 08:23:51 +0000

The argument (for allowing price to ration goods even in natural disasters) holds income distribution constant, but this is probably the real issue for the policy maker concerned about ‘price gouging,’ isn’t it? Policy makers conveniently come down on one side or the other of the efficiency/equity frontier, depending on the circumstances. And, much to our chagrin, they usually sound like Keynes’ practical men when they try to justify their position!

By: The Price Mechanism « Cheap Talk

The Price Mechanism « Cheap Talk — Wed, 31 Oct 2012 04:09:43 +0000

[...] my response to Erik Brynjolffson, who writes in the comments to my post on price [...]

By: Erik Brynjolfsson

Erik Brynjolfsson — Tue, 30 Oct 2012 23:32:34 +0000

Yes, incentives are one reason for caring about producers, but not the only reason. Producers also are people, just like consumers, and we’d like to see their utility increased, ceteris paribus. Thus, even if production decisions don’t change, I don’t follow your argument that we should put zero weight on producer surplus.

Why is a dollar in a consumer’s pocket valuable but a dollar in a producer’s pocket worthless? Presumably, the producer will eventually spend the dollar (if you let him have it) and become a happier consumer.

By: Price gouging: Can economics justify a price cap? | Knowledge Problem

Price gouging: Can economics justify a price cap? | Knowledge Problem — Tue, 30 Oct 2012 20:59:14 +0000

[...] Jeff Ely, Cheap Talk, blogged “Price Gouging“ [...]

By: José Antonio Espín Sánchez

José Antonio Espín Sánchez — Tue, 30 Oct 2012 20:09:03 +0000

What about, everybody receives the same utility from water, but our utility function is concave. In this case maximizing CS means giving everyone the same amount of water, regardless of the money they have. Hence, the competitive market will not work, i.e. wealthy people will get more water than poor people, not because they value water more, but because they can afford it. However, the Rationing mechanism will achieve first best.
All of this assuming that the supply is fix or rigid.

By: scha1985

scha1985 — Tue, 30 Oct 2012 19:24:40 +0000

Wait, I don’t understand…

I see that CS will increase if D goes up and if Q* (the actual number of waters transacted) is unaffected.

Even if supply of wather is fixed, but P < P*, why wouldn't potential sellers hoard it?

Also, how does the expectation of forthcoming water supplies impact price? Probably mitigates price gouging significantly.

By: Patrick R. Sullivan

Patrick R. Sullivan — Tue, 30 Oct 2012 18:57:30 +0000

‘Supply lines have been cut.’

Normal supply lines, you mean. But entrepreneurs who see a way to get bottled water into Manhattan during an emergency–through normally less efficient means, small boats, mini-vans–will have higher per unit costs than those of well-developed suppliers.

Those entrepreneurs need incentives to supply under extreme conditions. Higher prices provide that.

Even water has different value in different places and at different times. The Sahara desert v. a flooded basement, say.

By: roystgnr

roystgnr — Tue, 30 Oct 2012 17:18:34 +0000

These “unexpected” bad events – are they actually wholly unexpected in the sense that even survivalist and “prepper” folks would remark, “I never imagined anything like that coming, nor considered stockpiling or producing anything that would be useful when it did”? Or are they merely unexpected in the sense that calling them “unexpected” after the fact allows one to construct a shaky moral case for taking surplus (and moral authority) away from the people who did expect and prepare for them? That latter definition seems to be popular.

http://articles.philly.com/2012-10-22/news/34629079_1_jobless-claims-consumer-confidence-index-consumer-credit

I’m guessing that it’s the latter here, too. Since it’s obviously too late for a blogger-led campaign to affect economic policies regarding Hurricane Sandy, your recommendations could only be intended to apply to future natural disasters, almost as if you were *expecting* more such events…