Letter: Price Gouging
After any widespread natural disaster reporters and commentators often lament the despicable practice of price gouging. Merchants are cursed as heartless and cruel. Victimized shoppers vent their anger and frustration. Local police are called on to intervene.
This is exiting melodrama but sometimes wisdom and mercy dictate different courses of action. The immediate and obvious suffering of the shoppers is not the only consideration. Localized, temporary, radical price increases (price gouging) may actually have some beneficial effects visible only from a more distant perspective.
It is important that critical resources in a post disaster situation be conserved, substituted, and extended as much as possible. Whenever something has a very high price tag, like expensive but life saving medicine, most consumers will try to conserve, substitute, and extend it as much as they can. Very high prices tend to make consumers buy no more than they really need and make that stretch as much as they can.
In a post disaster situation critical resources tend to sell out rapidly and become completely unavailable in the disaster area. Very high prices tend to slow this process and cause the goods to remain in the stores for a somewhat longer period of time, maintaining their availability for victims who cannot reach the stores quickly.
It is important that fresh supplies enter the disaster area as soon as possible even when transportation is difficult. Temporarily high prices insure that both nearby and far away merchants will immediately try to get the needed supplies into the disaster area since the high prices can more than pay for the added transportation expense.
Allocating scarce law enforcement resources to controlling prices takes them away from higher priority activities like fire & rescue, looting prevention, and traffic control. Lives may be lost while emergency personnel argue with merchants about their prices. Price controls also often create black markets, adding a criminal dynamic to an already bad situation.
Locally high prices may increase outside sympathy for the disaster victims. Anger at the price gougers may inspire additional donations of supplies to deprive them of their outrageous profits.
Local merchants have an opportunity (if they can afford it) to purchase community good will by keeping their prices the same or lowering them in spite of increased demand. The merchants may also be victims however and those extra profits might be the only thing that makes it possible for them to rebuild their businesses.
So although it is easy to condemn price gouging as cruel and greedy, it may not be in the best interests of the disaster victims to try to suppress it. Why does the media show only the angry shoppers and not the good effects of price increases? Disasters are human drama and the suffering of the victims is dramatic. The beneficial effects are much harder to observe and describe than the anger and frustration of the disaster victims.