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More on Price Gouging

June 13, 2007, 3:33 pm

Gary Galles at Mises has a good post on why currently proposed "anti-gas-gouging" law is rediculously vague and effectively ex-post-facto law.  I have made this point before as well.

I wanted to comment on something different.  As he begins:

In May, the House of Representatives passed a bill that could lead to
fines as high as $3 million per day for gasoline price gouging, which
it defined as charging a price that "grossly exceeds the average
price"¦offered for sale by that person during the 30 days prior" or
"grossly exceeds the price at which the same or similar gasoline"¦was
readily obtainable in the same area from other competing sellers."

Lets take these two cases in reverse order.  If I am charging a prices that "grossly exceeds the price at which the same or similar gasoline"¦was
readily obtainable in the same area from other competing sellers," then what for God's sakes is the harm?  People will just go to one of the "readily obtainable" other sources.  My business will take a beating, but that's my problem.

The first case is an open invitation for gas lines.  It does not say "grossly exceeds the average
price"¦offered for sale by that person during the 30 days prior unless there is some kind of supply discontinuity or change in wholesale prices."   It sets up a clear if-then:  If you raise your prices by some amount we later rule to be too much, we can fine you $3 million per day.  In the confusion of a supply disruption, gas stations will be afraid to raise their prices despite the new supply-demand reality. They will be afraid of this kind of arbitrary enforcement.  Therefore, the first 100 random people who show up to top off their tanks  or fill their generators to keep their TV running will get the available supply, rather than letting price allocate the gas to the people who value it the most.

I lived through gas lines of the 1970's.  In fact, as the low-driver-on-the-totem-pole, it was my job in the family to cruise around town looking for an open station and then sitting in whatever line I found.  I don't think younger people remember, but in major cities (not in the countryside) in the 1970s, there were weeks when there simply was no gas to be found.  Since that experience, I have pleaded to allow gas gouging in supply emergencies.

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Category: Regulation
  • CRC

    Another potential side-effect of this law would be an exodus from the gasoline retailing business by (extremely high) risk-averse business people who would be (rightly) very concerned about violating this (ill-defined) law, further constraining the availability of this product.

  • http://cityofshadow.thumblogger.com/ mortalez

    Are you nuts?, when I first started driving I could fill my tank up with 8 bucks, as a kid (in the 70's) we would go on family drives it was bonding, now I can barely afford to drive to work and I drive a honda, 10 bucks just gets me alittle past E, must be nice that you can afford it not all of us can, and in my area all the good paying jobs are way the hell out in the sticks, so any encrease in pay you get my getting a better paying job is sucked up in gas..

  • CRC

    mortalex,

    So-called "price gouging" legislation will not solve that problem for you (or anyone else) and will likely lead to shortages that will increase the probability that you won't be able to get gasoline at any price.

  • The Dirty Mac

    mortalez:

    When I was a kid in the 1970's, I could go to see The Who for $8.00. Nominal dollars are not a valid comparison.

  • Tim

    Somebody answer a question for me. If I go get a MacDonalds cheeseburger for a dollar and try to re-sell it for, say, $1,000 am I price gouging? No one will actually accept my price. Does the gouging happen when you offer the cheeseburger for a grand or does it happen when you accept the cheeseburger for a grand. If it is on the offer, and you refuse the purchase how is that gouging, nothing was bought. If it is on the acceptance, how is it gouging? The price was acceptable?

    What I really don't understand is that if a product is MINE and I want to sell it, how can anyone tell me what price I can and can't sell my own personal property for? It is, after all, Mine. Doesn't there have to be some kind of undercurrent notion that everything is public property in order to have a government set a price for something they don't own?

  • Travis

    Mr. Coyote;

    You play right into the hands of the fascist price fixers by calling the pricing of scarce goods and services gouging. One function of price is to bring supply and demand into a rough balance. When gas supply dwindles and demand
    remains the same, the price is raised to discourage consumption in an attempt to balance supply and demand (and keep vendors from running out of gas). No one knows where that price is in advance, especially self-serving legislators.
    But it is not gouging. It is an attempt to find a balance between supply and demand. To label it
    as gouging is not only destructive to the wrokings of price and the market economy, but it
    perpetuates an economic illiteracy that is already of staggering proportions.

    Call it what it is.

    Price at work.

    It is not gouging.

    Travis Cork
    Conway, South Carolina

  • tribal elder

    Gouging is a loaded word. Our colleague and host, Coyote, believes in supply and demand driven pricing.

    Unfortunately, there is no loaded word (I can think of anyway) for business struck by severe and sudden price erosion from now-excess supply/crashing demand. Any reader a lobbyist for the buggy whip industry ?

  • http://comuse.blogspot.com Allen

    I think there is an argument to be made about imperfections in the marketplace when it comes to oil but how much of that is because of regulations & tariffs? And there is some room for argument on how commodities are traded and how much of a good ol' boy network it can be. But those to me are relatively minor. As a whole it is an issue of supply and demand.

    I'm with Travis on the issue of using the word "scarcity". It conjures up things that aren't fully what it means. In this case it's the risk of scarcity; it doesn't mean you run out of oil. Then again we did run out of gas here in Denver a few weeks ago. IIRC it was a refinery fire in Oklahoma and there were a few gas stations that at times literally didn't have gas.