Price Gouging is in the Eye of the Beholder

By Aaron Rice
February 13, 2006

Price gouging is like beauty - it's in the eye of the beholder. Let's say that before the hurricane, plywood was selling for a nationwide price of $8 dollars, and after the hurricane for $50.

Economics 101 teaches that if one person has plywood and is willing to part with it for $50.00, it's because he prefers having the money to having the plywood. If another person (the buyer) has $50.00 and is willing to pay that for the plywood, it's because he prefers the plywood to the $50.00.

Some would call that "price gouging," even though no one is forced to engage in this transaction, and it results in a mutual benefit. The broader benefit is that the $50.00 price motivates more people who have plywood to get it where it's needed. After the supply increases, the price declines. Many businesses charge less out of their concern for those in need. But should it be a crime - a felony, no less - to make an economic decision to sell on the Coast for $50 what they could only get $8 for elsewhere? If so, they'll ship the plywood somewhere with fewer obstacles, thus worsening the shortage in the area that needs it most.

Regulating prices almost always ends up harming consumers.


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