Dollars and Jens
Thursday, May 14, 2009
price gouging and behavioral economics
Is "price gouging" immoral, and should it be illegal?
Snyder also attack’s Zwolinski’s “nonworseness claim” and suggests rules for ethical rationing of necessary goods after a disaster. The “nonworseness claim” asserts that because us gouging someone is better than neglecting them altogether (i.e. closing shop or refusing to sell at any price), and neglecting them is within our rights, it must also be within our rights to gouge them.
The weekend after 9/11, I drove past a gas station on a turnpike, and it was closed, out of gas. I mused to myself that I should sue them for being so irresponsible as to charge a low enough price to run out of gas; what if I had been stranded because of that? By being given a franchise on the toll road, wasn't it taking on an obligation to provide its service?

He also has another post on this subject:
But I think there is more than just this anchoring heuristic going on in this case. It isn’t just the price increase relative to a reference transaction, but a price increase during a period of presumed increased hardship – the “large snowstorm.” I’d bet if they posed this alternative version, they’d get a significantly different answer:

A hardware store has been selling snow shovels for $15. The morning after Memorial Day, the store raises the price to $20.


A hardware store has been selling snow shovels for $15. The morning after a new store manager arrives, the store raises the price to $20.

To me, these versions don’t seem to trigger a sense of unfairness. On this topic, I still think the Kling conjecture is right: price increases in times of increased hardship are perceived as morally wrong by some people (not merely unfair), because of an embedded moral principle that says it is wrong to take advantage of people in distress (and price increases on necessary items during times of hardship is seen as ‘taking advantage of people’ unless there is a cost basis for the increase).

This is the most coherent explanation of "price gouging" as a psychosocial phenomenon that I've heard.


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