Sunday, October 28, 2012

Hurricane Charley and Price Gouging

As the eastern seaboard braces for a super storm, I thought now would be the time to discuss the morality of  raising prices on goods during a tropical storm.  I began thinking about this topic two weeks ago when I began rereading Michael Sandel's brilliant work, “Justice: What’s the Right Thing to Do?”

You can begin by reading the first pages of Mr. Sandel's book by using this link. 

I will begin with my thoughts which are entirely unorganized.  

During a hurricane where there are shortages, do you believe that sellers of water have pricing power?  Do you believe that people act in their own self-interests?  Do you believe that sellers of water have figuratively won the lottery and aren't entitled to the windfall profits from a hurricane?  Do you believe that individuals have a choice in what to buy?

These are just some of the questions that come to mind.  

I believe that water is sold in a very competitive market.  If weather disrupts the supply chain and people are now willing and able to buy water at the higher price, I have to sell my water at the higher price or I will not be able to compete in the long run.  If I sell my bottled water at a $1 when my competitors are selling their's for $10, I will deplete my stock quickly but I will not be able to replenish my stock at the market price.  My competitors will then sell their water and make ten times as much as me.  When it comes time to replenish the stocks of water, they will now have an advantage over me because they have made a profit.  When the market returns to normal, my competitors will be able to undersell me if they want to drive me out of the market.  

There are many other aspects to consider.  This is just the first.

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