Author Topic: Price gouging during natural disasters  (Read 8997 times)

LC

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Re: Price gouging during natural disasters
« Reply #30 on: September 07, 2017, 05:47:45 PM »
I still don't think I follow.

Are you saying the market price for one or both goods was below an "operative" price ceiling, despite (1) gas stations with inventory having lines 1+ miles long, and (2) bottled water constantly selling out in grocery stores but being consistently resupplied?
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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Cigarbutt

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Re: Price gouging during natural disasters
« Reply #31 on: September 08, 2017, 06:15:22 AM »
Quote:

"I like petecís idea of minimizing opportunities for price gouging (primary prevention) and think that specific criteria (which items, what price premiums) could be determined (secondary prevention) in order to efficiently put a cap on specific abuse scenarios."

From rukawa :

ę I actually don't think Petec proposed that. Once you implement your system of trying to figure out premiums you have basically blunted the most powerful aspects of a market which is its ability to adapt in real time to changing conditions using local information. Petec proposed you allow the free-market to operate but also have non-profit sector operating alongside. And my addendum to that is the non-profit could target those goods with high prices. This way you are actually solving the supply/demand problem instead of pretending it doesn't exist. Ľ

Time to round up.

I read an interesting article yesterday about the beauty of price discovery. The point of the essay was that it is very hard, in general, to combine market forces with ę central Ľ planning (ę either balance sheets or bullies Ľ). And, thinking about Florida, I would say that, if put in the actual circumstances, price gouging would not top the priority list. Maybe better to discuss these issues with a cool head.

Having said that and keeping in mind the unintended consequences, you mention basic textbook economics and you refer to a supply/demand ę problem Ľ. Isnít there a problem with price discovery in natural disasters when the basic assumptions of basic economics maybe temporarily donít hold up anymore?

This thread was useful and helped me reach a more informed opinion. Thank you for the contribution.

rukawa

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Re: Price gouging during natural disasters
« Reply #32 on: September 16, 2017, 01:54:14 AM »
I still don't think I follow.

Are you saying the market price for one or both goods was below an "operative" price ceiling, despite (1) gas stations with inventory having lines 1+ miles long, and (2) bottled water constantly selling out in grocery stores but being consistently resupplied?

Your right my explanation is a poor one. My guess is that the difference between the two is that it takes time to fill gas and it doesn't take time to buy water. So one produces lineups and the other doesn't. What textbooks economics will tell you is that with price controls you will get lineups and empty shelves. This is based on empirical experience with price controls...not theory. There is no real theory telling you exactly what you will get in what situation. So you are right economics would not distinguish between the water and the gas.

But I don't think what you are talking about is relevant. The main thing economics will tell you is that if you want to avoid empty shelves and lineups, you increase prices. And all this isn't based on any theory...its based on knowledge of historical economics....of situations where price controls were introduced and they produced exactly the type of situations you observe in these disasters: lineups and empty shelves.

You actually don't need economics at all. All the economics is doing is summarizing historical human experience. We had price controls...there were empty shelves and very long lineups. We eliminated price controls ... these went away. Here is a prediction based on this...when the Venezuelan government changes and the price controls are eliminated...all the empty shelves and lineups will go away within a few months.

Do you agree with this prediction?

Quote
Isnít there a problem with price discovery in natural disasters when the basic assumptions of basic economics maybe temporarily donít hold up anymore?

Please explain. Why exactly do you think markets won't work during natural disasters? What part of the market do you think does not work?

As for economics...its a model of markets. Its basic modelling assumptions, in my view, never hold true. Yet markets work anyways.
« Last Edit: September 16, 2017, 02:06:57 AM by rukawa »

LC

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Re: Price gouging during natural disasters
« Reply #33 on: October 15, 2017, 04:20:20 PM »
I just realized I never responded to your post, rukawa:

Quote
Please explain. Why exactly do you think markets won't work during natural disasters? What part of the market do you think does not work?
I was referring to price discovery, because you are combining temporary problems with distribution + massive temporary demand increases. So you get a one-time spike in price but it causes a lot of hardship during that temporary time period.

However during sustained conditions (think Venezuela) that is where you need a liquid pricing mechanism for the reasons you mention.

"Lethargy bordering on sloth remains the cornerstone of our investment style."
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LC

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Re: Price gouging during natural disasters
« Reply #34 on: October 15, 2017, 04:21:16 PM »
The Times did a piece on dynamic pricing that presents some good thoughts:\

https://www.nytimes.com/2017/10/14/upshot/why-surge-prices-make-us-so-mad-what-springsteen-home-depot-and-a-nobel-winner-know.html

From the article, here is how Home Depot prepares & responds to hurricane season:

The first thing they did was direct all prices to be frozen in areas likely to be affected by the storm. There is no surge pricing at Home Depot stores after a disaster, in both a longstanding corporate policy and a matter of law in many states.

But the company doesnít stop with that. All those logistics people and other staffers are there to ensure that the surge in demand after a disaster is matched with a higher supply of the goods people need.

As hurricane season approaches, dedicated warehouses are stocked with goods that will be needed if a major storm hits, according to the companyís director of corporate communications, Stephen Holmes. And thatís why, as soon as Irma passed the Miami area and the major highways were confirmed to be passable, a convoy of 41 tractor-trailers full of generators, plywood, chain saws and similar items trekked from Georgia to South Florida, escorted by the police.

« Last Edit: October 15, 2017, 05:02:42 PM by LC »
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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Cigarbutt

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Re: Price gouging during natural disasters
« Reply #35 on: October 16, 2017, 05:12:46 AM »
"Please explain. Why exactly do you think markets won't work during natural disasters? What part of the market do you think does not work?"

The underlying point is that you cannot invoke that economics 101 applies when assumptions underlying the model clearly don't apply. But, obviously, the "market" will always, somehow, come to a solution. The question is: on a net basis, can you prevent undesirable side effects without compromising what works best in most circumstances?

Natural disasters are extreme events in a way. Let's test this extreme notion further. You are walking in the desert and need (desperately) water. You meet a person (who may have relevant information about price discovery but who may not volunteer that info) who has water. The price for you is very high and potentially unlimited. The price for the other person is variable but cost basis is minimal. What should happen? I suggest that the price "agreed upon" may have something to do with how much the seller wants to obtain.

So, isn't the market failing here? Is that "fair"? Are there potential solutions?   
To add an interesting twist: what if you have a gun? the cost of water then may correspond to the price of a bullet.
Market forces at work? No?

Maybe we can't do better.
But it is a relevant question.
« Last Edit: October 16, 2017, 05:19:20 AM by Cigarbutt »

rkbabang

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Re: Price gouging during natural disasters
« Reply #36 on: October 16, 2017, 05:27:17 AM »
"Please explain. Why exactly do you think markets won't work during natural disasters? What part of the market do you think does not work?"

The underlying point is that you cannot invoke that economics 101 applies when assumptions underlying the model clearly don't apply. But, obviously, the "market" will always, somehow, come to a solution. The question is: on a net basis, can you prevent undesirable side effects without compromising what works best in most circumstances?

Natural disasters are extreme events in a way. Let's test this extreme notion further. You are walking in the desert and need (desperately) water. You meet a person (who may have relevant information about price discovery but who may not volunteer that info) who has water. The price for you is very high and potentially unlimited. The price for the other person is variable but cost basis is minimal. What should happen? I suggest that the price "agreed upon" may have something to do with how much the seller wants to obtain.

So, isn't the market failing here? Is that "fair"? Are there potential solutions?   
To add an interesting twist: what if you have a gun? the cost of water then may correspond to the price of a bullet.
Market forces at work? No?

Maybe we can't do better.
But it is a relevant question.


You do have a gun, it is called government.  Using that gun is exactly what you are doing when you get in between what a seller is willing to sell for and a buyer is willing to buy for and force something else to happen.  Using the force of law to determine prices is the moral equivalent of using a gun to obtain water from an unwilling party.  Fortunately there is a better way, it is called peaceful voluntary exchange on the market.

LC

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Re: Price gouging during natural disasters
« Reply #37 on: October 16, 2017, 08:02:05 AM »
There is also a sense of fairness. Without a gun, or the government, the water-seller can essentially charge you for everything you own. The only thing stopping him from doing so is his own humanity.

This is the conclusion of the variable pricing article I linked:

What the successful examples of variable pricing have in common is that they treat customersí desire for fairness not as some irrational rejection of economic logic to be scoffed at, but something fundamental, hard-wired into their view of the world. It is a reality that has to be respected and understood, whether youíre setting the price for a highway toll, a kilowatt of power on a hot day, or a generator after a hurricane.


"Lethargy bordering on sloth remains the cornerstone of our investment style."
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LC

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Re: Price gouging during natural disasters
« Reply #38 on: March 14, 2020, 05:40:21 PM »
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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