Oh What a Crime
It had to happen. Analysis to come later.
Update: Prices are set through a system of trial and error; competition is what drives them down to near their average total cost of production. As long as market conditions remain relatively stable, prices will also tend to remain stable. But when market conditions change, prices too, will often change.
Consider the price of gasoline following the September 11, 2001 attacks on the World Trade Center. Gasoline refiners in this country, having been informed that the attacks were perpetrated by terrorists from the Middle East, had every reason to expect a disruption in the flow of crude oil into the U.S., hence there would be a reduced supply--a shortage--of oil in this country in the near future. Gas refiners responded by raising their prices now in order to conserve gasoline today when we have a relative abundance so that there is more in the future when we expect to have less. People reacted by reducing their amount of driving: they carpooled, biked more often, and made fewer unnecessary trips in response to the higher gasoline price.
There was no magic price that gas refiners and dealers knew would result in a smooth allocation of gasoline over time; and in fact they didn't even have to know, their motivation was simply to try and maximize their profits. Those refiners and gas station owners who guessed wrong and priced too high or too low would lose profits. Those who set their prices too high found that consumers purchased their gas elsewhere and the supplier had an excess supply in the future when the price fell. For those who priced too low, they likely sold out of their gasoline supply and didn't have much left for future demand. This process ensures that we allocate resources efficiently and smoothly over time.
This same principle applies to gasoline cans selling in Florida after a hurricane. Through a system of trial and error, sellers of gasoline cans, in their desire to maximize their profits (that nasty word), set prices via trial and error. The market has changed as a result of the hurricane and suppliers of goods and services respond by raising their prices in order to maximize profits. The result is that Floridians conserve these goods and resources now when they are relatively scarce, ensuring that those who need them most get them both today and in the future.
What puzzles me about this linked story is that I wonder if there is a corresponding criminal investigation when market conditions turn the other way. Let's say that a new watch is invented that acts as a powerful electrical generator in emergencies. The watch only costs fifty dollars and the price of generators consequently falls to one-tenth their "normal" selling price. Will Florida's AG step in to ensure that the sellers and manufacturers of electrical generators don't get "gouged" by "profiteering" consumers?
liberalorder.typepad.com |
