Price Gouging

Price Gouging

The two definitions that result from a "define: price gouging" search in Google are

  • pricing above the market when no alternative retailer is available (, and
  • the phenomenon of sharply rising prices of items in (often temporary) high demand (
As can be seen by the second definition, price gouging describes an economic occurrence. The term "price gouging" is rather unfortunate, as it implies that someone is taking aggressive action against someone else and "gouging" them.

Really, price gouging is merely a reaction to supply and demand and rarely has anything to do with suppliers taking advantage of consumers. For example, if a hurricane destoys oil platforms in the Gulf of Mexico, then the supply of oil decreases. If Jimmy owns a gas station in Atlanta which gets most of its supply from those platforms, then a hurricane in the Gulf of Mexico means that he might not be able to resupply his stock of gasoline once he sells it. The only logical thing for Jimmy to do is to increase the price of the gasoline to a point at which only a few consumers will be willing to pay for it. The perfect price he can choose is one that will sell at a rate that will leave Jimmy with an empty stock of gasoline at the very moment he can be resupplied. If this price is $6.00, then so be it. Is he attacking consumers by taking this action? No, he isn't, and if he were to leave the price unchanged his gas supply would run out quickly and he would have to close down.

I disagree with the first definition listed above. How can a price be "above" the market? If demanders are willing to pay a certain price, then the price is not above the market. If they aren't willing to pay that price, then the supplier won't charge the price.

Basically, price gouging doesn't exist. If a consumer is willing to pay a certain price, then he is not being gouged. If he's not willing, then he can look for a substitute or do without. That's exactly what supply and demand are all about.

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