price-gouging

[npts2020]

    This was said on another thread, "We’ve seen many recent examples of companies price-gouging because they were prioritizing their own interests." It doesn't matter who it was because I have heard the same or similar statements from many people, both on and off of this forum. The question is, "How in a supposedly capitalist society can there be such a thing as price-gouging?" I thought the whole principle of capitalism is that greed is the best motivator and you should charge whatever the market will bear?

[swansont]

There is supposed to be competition that would limit prices. 

[npts2020]

2 hours ago, swansont said:

There is supposed to be competition that would limit prices. 

Competition is an interesting concept when it comes to capitalism. Wouldn't getting rid of competition so you can maximize profits be what a good capitalist should strive for?

[iNow]

Yes. All companies want a monopoly for a product which the public cannot survive without. They will seek to use levers of government to prioritize their own profits and alter the landscape so it’s hard to the point of impossible for competitors to even enter the market. 

But the real world is far more complex and simplistic labels never adequately describe how it works. These labels are usually introduced by simple people making simplistic ideological points regardless of their validity or utility. 

[zapatos]

7 minutes ago, npts2020 said:

Competition is an interesting concept when it comes to capitalism. Wouldn't getting rid of competition so you can maximize profits be what a good capitalist should strive for?

They should, and often do for a time, but if they are successful and limit competition then regulators usually step in. 

[swansont]

10 minutes ago, npts2020 said:

Competition is an interesting concept when it comes to capitalism. Wouldn't getting rid of competition so you can maximize profits be what a good capitalist should strive for?

Sure. But where is this actually allowed? More than 100 countries have antitrust laws. 

You can’t offer up a counter to price-gouging by citing unfettered capitalism, since the latter is not a reality, but an idealized system. And drawbacks of it are well-known.

[exchemist]

5 hours ago, npts2020 said:

    This was said on another thread, "We’ve seen many recent examples of companies price-gouging because they were prioritizing their own interests." It doesn't matter who it was because I have heard the same or similar statements from many people, both on and off of this forum. The question is, "How in a supposedly capitalist society can there be such a thing as price-gouging?" I thought the whole principle of capitalism is that greed is the best motivator and you should charge whatever the market will bear?

True, but those same market forces mean that companies that are perceived by their customers as ripping them off risk losing market share over time, if they have any competition. So it's absolutely fair comment for customers to complain of price gouging if they feel they are being shafted. It's just one mechanism by which market forces operate! 

[swansont]

17 minutes ago, exchemist said:

True, but those same market forces mean that companies that are perceived by their customers as ripping them off risk losing market share over time, if they have any competition. So it's absolutely fair comment for customers to complain of price gouging if they feel they are being shafted. It's just one mechanism by which market forces operate! 

I remember a story from a while back where there was some disaster and one of the stores in a small-ish town jacked up prices to cash in on the temporary supply shortage. Other stores ran out, and people were forced to shell out for some basics, since there was no other option.

When things got back to normal their business fell off dramatically. People remembered being screwed over and just stopped shopping there.

But that only works if there are alternatives.

 

[exchemist]

2 hours ago, swansont said:

I remember a story from a while back where there was some disaster and one of the stores in a small-ish town jacked up prices to cash in on the temporary supply shortage. Other stores ran out, and people were forced to shell out for some basics, since there was no other option.

When things got back to normal their business fell off dramatically. People remembered being screwed over and just stopped shopping there.

But that only works if there are alternatives.

 

Which is why you have the FTC and we have the CMA. And we definitely need such bodies, since an unfettered free market tends eventually towards monopoly, or at least oligopoly. 

Edited September 27 by exchemist

[npts2020]

7 hours ago, swansont said:

Sure. But where is this actually allowed? More than 100 countries have antitrust laws. 

You can’t offer up a counter to price-gouging by citing unfettered capitalism, since the latter is not a reality, but an idealized system. And drawbacks of it are well-known.

Having laws is all well and good but they have to actually be enforced and in a timely manner. In the US, they seem to be rarely enforced and when they are, it generally takes years of litigation before there is any conclusion to the matter, by which time the monopolist usually has had long enough to make up for any penalties imposed. IMO that makes the current (US) system closer to that unfettered ideal than to than to the kind of ideal that ought control capitalism enough to benefit everyone. 

5 hours ago, swansont said:

I remember a story from a while back where there was some disaster and one of the stores in a small-ish town jacked up prices to cash in on the temporary supply shortage. Other stores ran out, and people were forced to shell out for some basics, since there was no other option.

When things got back to normal their business fell off dramatically. People remembered being screwed over and just stopped shopping there.

But that only works if there are alternatives.

 

In an ideal world, this would happen but it doesn't seem to apply to the majority of citizens in the US. For example, one of the things people complain about the price of is cereal. All of the big producers  (General Mills, Kelloggs, and Post) raised prices significantly over the past couple of years while most small producers' prices barely budged yet General Mills, Kelloggs and Post remain the top cereal makers, by far. This is even with many generics being virtually the same as what they sell.

 

8 hours ago, iNow said:

Yes. All companies want a monopoly for a product which the public cannot survive without. They will seek to use levers of government to prioritize their own profits and alter the landscape so it’s hard to the point of impossible for competitors to even enter the market. 

But the real world is far more complex and simplistic labels never adequately describe how it works. These labels are usually introduced by simple people making simplistic ideological points regardless of their validity or utility.

Well, the "simplistic label" I am trying to get to the bottom of is exactly what is "price gouging"? It seems to me, there are very few things in life one can't do without or find an alternative for so why pay a price for something if you feel you are being "gouged"?

[iNow]

2 hours ago, npts2020 said:

there are very few things in life one can't do without or find an alternative for so why pay a price for something if you feel you are being "gouged"?

Like drinking water and plywood during a category 5 hurricane, or heating oil during a several weeks long winter blizzard, or food during a wartime occupation by an enemy?

Simplistic indeed if you could’ve even conceive of these simple examples. 

[zapatos]

3 hours ago, npts2020 said:

Well, the "simplistic label" I am trying to get to the bottom of is exactly what is "price gouging"? It seems to me, there are very few things in life one can't do without or find an alternative for so why pay a price for something if you feel you are being "gouged"?

Price gouging is typically done when they can get away with it, which is when the consumer cannot do without it or find an alternative. At the beginning of the pandemic price gouging was rampant for things like face masks and sanitizer. It is sometimes done with lifesaving drugs. In 2015 a drug called Daraprim was acquired by a start-up run by a hedge fund manager. Overnight, the price of the drug increased from $13.50 per tablet to $750 per tablet. They figured the patients had no alternative so they would pay.

[npts2020]

32 minutes ago, iNow said:

Like drinking water and plywood during a category 5 hurricane, or heating oil during a several weeks long winter blizzard, or food during a wartime occupation by an enemy?

Simplistic indeed if you could’ve even conceive of these simple examples. 

Ok, so how much is price gouging? 10% more than normal? 50%? 200%? 1,000%? If I had the foresight and means to acquire something in short supply, who are you to tell me I am price gouging if people will pay it? It seems to me I should be congratulated for being a good enough capitalist to maximize my profits.

[Endy0816]

4 hours ago, npts2020 said:

Ok, so how much is price gouging? 10% more than normal? 50%? 200%? 1,000%? If I had the foresight and means to acquire something in short supply, who are you to tell me I am price gouging if people will pay it? It seems to me I should be congratulated for being a good enough capitalist to maximize my profits.

Law varies by State.

https://www.findlaw.com/consumer/consumer-transactions/price-gouging-laws-by-state.html

Governments generally come down hard on price gouging. Typically requires there to be a declared disaster to qualify though.

[exchemist]

5 hours ago, npts2020 said:

Ok, so how much is price gouging? 10% more than normal? 50%? 200%? 1,000%? If I had the foresight and means to acquire something in short supply, who are you to tell me I am price gouging if people will pay it? It seems to me I should be congratulated for being a good enough capitalist to maximize my profits.

As I said earlier, it's a perception by the customer, not an objectively quantifiable thing. You can charge what the market will bear in the short term, but if you value customer loyalty that has to be tempered by an awareness of what your customers are likely to think is a reasonable price.  

During my career in the downstream oil industry (lubricants), I used to distinguish between the mentality of traders and that of marketers. A trader behaves exactly as you describe. Each transaction is profit-earning in its own right and there is little or no loyalty expected or shown between a trader and his counterparty, save that of basic honesty - nobody wants to trade with a crook. (Traders used to be advised to be guided by the old adage "my word is my bond".) But in marketing you are trying to build a brand, to which your customers will feel some loyalty, returning time after time for repeat purchases. For that they must be happy with the product and any associated services, and part of that is the price, of course, as well as the performance of the product and the general market behaviour and reputation of the company.  Brands take decades to build, but can be trashed overnight by clumsy behaviour or a product failure. So they have to be nurtured with extreme care. There are thus a lot more factors to consider in marketing than in trading, even in a theoretical unregulated, free market environment.  

Edited September 28 by exchemist

[swansont]

1 hour ago, exchemist said:

As I said earlier, it's a perception by the customer, not an objectively quantifiable thing.

A lot of US laws quantify it. Often a 10%-15% rise in price compared to the past 30 days, above any rise in costs.

 

[J.C.MacSwell]

2 hours ago, exchemist said:

As I said earlier, it's a perception by the customer, not an objectively quantifiable thing. You can charge what the market will bear in the short term, but if you value customer loyalty that has to be tempered by an awareness of what your customers are likely to think is a reasonable price.  

During my career in the downstream oil industry (lubricants), I used to distinguish between the mentality of traders and that of marketers. A trader behaves exactly as you describe. Each transaction is profit-earning in its own right and there is little or no loyalty expected or shown between a trader and his counterparty, save that of basic honesty - nobody wants to trade with a crook. (Traders used to be advised to be guided by the old adage "my word is my bond".) But in marketing you are trying to build a brand, to which your customers will feel some loyalty, returning time after time for repeat purchases. For that they must be happy with the product and any associated services, and part of that is the price, of course, as well as the performance of the product and the general market behaviour and reputation of the company.  Brands take decades to build, but can be trashed overnight by clumsy behaviour or a product failure. So they have to be nurtured with extreme care. There are thus a lot more factors to consider in marketing than in trading, even in a theoretical unregulated, free market environment.  

Good points. Traders can of course gouge when they own the product but not the brand. You might hold it against them but not the brand if you can in the fiuture get it elsewhere.

2 minutes ago, swansont said:

A lot of US laws quantify it. Often a 10%-15% rise in price compared to the past 30 days, above any rise in costs.

 

Seems odd that it could be that low for a typically marked up good, especially if compared to ones significantly higher marked up already.

[exchemist]

19 minutes ago, swansont said:

A lot of US laws quantify it. Often a 10%-15% rise in price compared to the past 30 days, above any rise in costs.

 

That's interesting. So there is actually a legal constraint on the rate at which prices can be increased. But I suspect the "rise in costs" bit is fairly hard to establish unambiguously. Attributing costs to individual products is notoriously difficult and arbitrary. Sounds to me like a licence for rival groups of snarling American lawyers to earn huge fees 😄. 

[StringJunky]

7 hours ago, zapatos said:

Price gouging is typically done when they can get away with it, which is when the consumer cannot do without it or find an alternative. At the beginning of the pandemic price gouging was rampant for things like face masks and sanitizer. It is sometimes done with lifesaving drugs. In 2015 a drug called Daraprim was acquired by a start-up run by a hedge fund manager. Overnight, the price of the drug increased from $13.50 per tablet to $750 per tablet. They figured the patients had no alternative so they would pay.

I remember that. Martin Shkreli got 7 years jail for securities fraud and a lifetime ban from the pharmaceutical industry. It also set off several investigations into drug pricing.

Edited September 28 by StringJunky

[swansont]

20 minutes ago, exchemist said:

That's interesting. So there is actually a legal constraint on the rate at which prices can be increased. But I suspect the "rise in costs" bit is fairly hard to establish unambiguously. Attributing costs to individual products is notoriously difficult and arbitrary. Sounds to me like a licence for rival groups of snarling American lawyers to earn huge fees 😄. 

There is wording in many of them about a declared emergency, so timing is part of it.

But I suspect that shipping and wholesale cost would be easy to document, and show that you were just maintaining your profit margin if all you were doing was adjusting to those changes.

And I think these are state sanctions, so the state would be prosecuting and the business pays the fine and have to pay their lawyers.

[exchemist]

1 hour ago, swansont said:

There is wording in many of them about a declared emergency, so timing is part of it.

But I suspect that shipping and wholesale cost would be easy to document, and show that you were just maintaining your profit margin if all you were doing was adjusting to those changes.

And I think these are state sanctions, so the state would be prosecuting and the business pays the fine and have to pay their lawyers.

OK that makes sense.

[npts2020]

6 hours ago, Endy0816 said:

Law varies by State.

https://www.findlaw.com/consumer/consumer-transactions/price-gouging-laws-by-state.html

Governments generally come down hard on price gouging. Typically requires there to be a declared disaster to qualify though.

Virtually all of these laws are only applicable to the aftermath of some kind of disaster or emergency, however. What about increases every month or year? During the oil crises of the 1970's, crude oil reached over $150 a barrel yet prices at the gas pump never exceeded $1/gallon in most places. Today, oil is about half the 1970's price and we are paying over $3/gallon. Are oil companies price gouging and if they are, is anyone doing anything about it?

[zapatos]

22 minutes ago, npts2020 said:

During the oil crises of the 1970's, crude oil reached over $150 a barrel

Really?

Quote

Indeed, the 1970s would prove to be the “energy crisis decade.” In December 1973, with panic gripping the world oil market, OPEC raised the price of a barrel—which three years earlier had been $1.80—to $11.65. 

https://www.energypolicy.columbia.edu/publications/the-1973-oil-crisis-three-crises-in-one-and-the-lessons-for-today/#:~:text=Indeed%2C the 1970s would prove,barrel to %2480 a barrel.

[exchemist]

1 hour ago, npts2020 said:

Virtually all of these laws are only applicable to the aftermath of some kind of disaster or emergency, however. What about increases every month or year? During the oil crises of the 1970's, crude oil reached over $150 a barrel yet prices at the gas pump never exceeded $1/gallon in most places. Today, oil is about half the 1970's price and we are paying over $3/gallon. Are oil companies price gouging and if they are, is anyone doing anything about it?

Are you sure about that? I don’t recall it ever exceeding about $40/bbl in the 1970s.

[iNow]

12 hours ago, npts2020 said:

It seems to me I should be congratulated for being a good enough capitalist to maximize my profits.

You are clearly correct that in purely capitalistic terms where ALL that matters is the ability to maximize profits…be damned any consequences doing so might create… and in those narrowly focused terms we can all agree that folks gouging prices during times of shortage and emergency are behaving exactly as they should and completely inline with expectations. 

However, you’re ignoring a few important things by proceeding in this way. Consider for a moment how thinking along these lines in other contexts might play out. IMO this more easily illustrates why we might consider choosing a different better informed path.

For example, let’s make a similar argument in context of evolution and local governance. Let’s assume your neighbor is bigger and stronger and owns more guns than you do. Let’s assume he steals from you, takes your food, your car, and rapes your wife whenever he feels like it. Following your logic, that should be perfectly allowed and celebrated all because you were too weak to stop them.

Or let’s assume maybe that a local militia or gang kidnaps and enslaves your children and sends them to work in mines and forced sex clubs so they can use them to further increase their own wealth. We don’t have to try too hard to imagine these things bc in many areas of the world that is exactly what happens every day.

According to your logic they should be allowed to do this because they are more powerful and it’s completely up to the weak to raise themselves up by their bootstraps and overcome this oppression. It’s just survival of the fittest after all, right?

Well, okay. Maybe. Let’s assume you’re right and that we should allow those things to happen. But guess what? What you ignore is that the weak DID join together and rise up. The weak DID collaborate and find ways to end that type of oppression and corruption. The weak DID implement laws to protect the masses from being taken advantage of and DID implement measures for the good of those who couldn’t defend themselves alone… measures focusing on fostering a healthier broader more cohesive society. 

So… Laws were implemented to protect children from being enslaved. Laws were implemented to punish those who steal from their neighbors or inflict violence on the spouses and loved ones of those neighbors. These laws allow society as a whole to function better, to expand and grow more sustainably, and to ensure we don’t all exist in some Mad Max style every man for himself hellscape controlled solely by the strongest and most violent gangs among us. 

And we did this ALSO in our economy where we punish the biggest and the strongest market players for price gouging, and we did it for the same or similar reasons.

Sure, the strongest gangs… erm, I mean companies…could do and take whatever they want whenever they want, but we’ve decided as a people NOT to allow this. This decision has led to our continued advancement as a species where a rising tide lifts all boats; where the pie gets bigger and we all get a larger piece of it together. We’ve implemented a governance structure to prioritize certain norms and mores over others, and one of those norms is that the biggest gang or company should NOT be allowed to ride rough shod unabated on the backs of the weak.   

Often the good of the many outweighs the good of the few, or the one… and this is especially true in context of price gouging. This point seems so self-evident to me that one wonders if failing to see it may be due to some anti-social tendencies. 

Edited September 28 by iNow