Price Gouging: Not just for campus food anymore

Here is my second column published in my university’s newspaper.

Last week, my economics class discussed price gouging. Apparently, some gas station owners are being prosecuted for raising gasoline prices before and after Hurricane Katrina.

As we all know, Katrina left thousands homeless and generally devastated the south. Thank God that the government came to the rescue- by investigating high gas prices.
After the hurricane, few offenses were more reviled than gas price gouging. Politicians staged witch hunts, railing against the wicked oil industry and its unquenchable lust for profit. The media vilified any supplier accused of raising prices, and the American people believed the hype.

The truth behind the hype is that price gouging is a myth. In a free market like ours, the government need not ration products because prices do that automatically. Normally, if a product is scarce, the demand will be higher, and the seller will charge a higher price. For example, diamonds are scarce, in high demand, and consequently, expensive. I’ve never heard of widespread diamond price gouging.

To use my professor’s example, imagine that you need to walk from North Complex to Slagle in the rain. That’s quite a trek in a downpour. Suppose I stand at the entrance to the dorms with a box of 2 dollar umbrellas, selling them for 10 dollars each. Am I gouging the price? No.

You see, I’m not forcing you to buy the umbrella. We both know that you could get it at Wal-Mart for 2 dollars, but you choose to buy from me because it’s more convenient. If you think convenience and dryness are worth 8 extra dollars, then buy an umbrella from me. If not, then don’t. It’s your choice.

How does all this relate to gas prices?

Suppose you own a gas station the day before a major hurricane landfall. There’s a line of cars around the block waiting to pump gas. What do you do?
Well, think about it. Demand for gas is way up, but your station has a limited supply. What’s worse, you have no idea when the next shipment will arrive. The only way to ensure that people who really need gas can get it is to raise the price. People who truly need the stuff will grudgingly pay a few bucks more; those who are just freaking out over the hurricane will go find cheaper gas. In the words of economist Jerry Taylor, “People who value gasoline most are willing to pay higher prices than those who value it less. The former get the gasoline — the latter to some extent go without.”

This is my point. In a free market, higher prices don’t necessarily cheat people out of money because customers have the simple freedom to go elsewhere. If you buy a product at a higher price than normal, you either truly value it, or don’t want to shop around. Don’t get mad- it’s not the government’s fault that you didn’t shop around. It’s yours. Live with it.