Economics: The Value of "Price Gouging"

[DBTrek]

I get that there may be a shortage of rooms I just don't see how raising the price of a room helps that problem.
If it were my hotel I would let people know that they will have to share a twin room and that nobody gets to have a room to themselves once all the single rooms have gone. If you aren't prepared to share a room then you are welcome to try elsewhere.

No need to be greedy and charge extra for a bed just because people have no choice.
The farmer who pulled my car out of a snow drift today didn't ask for money before he helped me out. He just did it because he could and it was the kind thing to do. Maybe you think he was a sucker for not screwing me out of 20 quid because supply and demand or something.

Raising the prices of rooms helps the situation by encouraging self-rationing. People have a financial motivation to take no more than they need when prices are high.

Your solution is an economic one as well (central planning) that has it’s own positives and negatives. Sticking strangers in rooms together Is a risky proposition, given that your hotel is accepting responsibility for how those strangers interact by virtue of forcing cohabitation on them. But it’s one way to go about it. It still leaves some people out in the cold.

I don’t think the guy who pulled you out of a snowbank is a sucker, unless he feeds his family by pulling people out of snowbanks (in which case, he is). Sounds like a nice guy.

[Montegriffo]

I get that there may be a shortage of rooms I just don't see how raising the price of a room helps that problem.
If it were my hotel I would let people know that they will have to share a twin room and that nobody gets to have a room to themselves once all the single rooms have gone. If you aren't prepared to share a room then you are welcome to try elsewhere.

No need to be greedy and charge extra for a bed just because people have no choice.
The farmer who pulled my car out of a snow drift today didn't ask for money before he helped me out. He just did it because he could and it was the kind thing to do. Maybe you think he was a sucker for not screwing me out of 20 quid because supply and demand or something.

Raising the prices of rooms helps the situation by encouraging self-rationing. People have a financial motivation to take no more than they need when prices are high.

Your solution is an economic one as well (central planning) that has it’s own positives and negatives. Sticking strangers in rooms together Is a risky proposition, given that your hotel is accepting responsibility for how those strangers interact by virtue of forcing cohabitation on them. But it’s one way to go about it. It still leaves some people out in the cold.

I don’t think the guy who pulled you out of a snowbank is a sucker, unless he feeds his family by pulling people out of snowbanks (in which case, he is). Sounds like a nice guy.

Who is going to take more than one bed? That's the bit I'm struggling to understand.
In what scenario am I going to go into a hotel and take more rooms than I need?

Yes he was a nice guy, I'm going to bake a chocolate cake for him tomorrow and take it round to say thanks.

[DBTrek]

Who is going to take more than one bed? That's the bit I'm struggling to understand.
In what scenario am I going to go into a hotel and take more rooms than I need?

Yes he was a nice guy, I'm going to bake a chocolate cake for him tomorrow and take it round to say thanks.

Imagine a car with two couples traveling together. They’d probably take one room for each couple under normal circumstances, but at high prices they may take one. Same for parents with older children who might get adjoining rooms but will all pack into one room when prices are high. The lone businessman who normally buys a spacious executive suite may forgo it for a single room - leaving a the large suite open for a larger group able to pool their resources (and not opposed to sleeping in the couch or floor).

The high prices encourage people to take the minimum needed space, rather than the space they are accustomed to taking while on vacation.

... but if prices are fixed to normal February rates, no one has any incentive to regulate their consumption whatsoever. More people will be out in the cold after the early arrivals take they space they’re used to.

[Speaker to Animals]

Put this car in reverse and go back to the fundamental conditions for cartels and monopolies. Do you concede that the only way you can engage in price gouging is to control supply?

[DBTrek]

Put this car in reverse and go back to the fundamental conditions for cartels and monopolies. Do you concede that the only way you can engage in price gouging is to control supply?

No, price control via cartel/monopoly is a separate animal from capitalizing on temporary, but significant spikes in demand.

If FEMA is handing out bottles of water, but can’t address all of the demand in a timely manner (maybe there’s a four hour wait per gallon), others can still sell for above normal prices even though an alternative supply is available. At least until demand returns to normal levels.

[Speaker to Animals]

Put this car in reverse and go back to the fundamental conditions for cartels and monopolies. Do you concede that the only way you can engage in price gouging is to control supply?

No, price control via cartel/monopoly is a separate animal from capitalizing on temporary, but significant spikes in demand.

If FEMA is handing out bottles of water, but can’t address all of the demand in a timely manner (maybe there’s a four hour wait per gallon), others can still sell for above normal prices even though an alternative supply is available. At least until demand returns to normal levels.

The same condition that allows for price gouging is what allows for cartels and monopolies.

Say a giant space rock hits Seattle in a divine act of justice for all their faggotry. You, Fife, and me are the only dudes in town with large supplies of potable water for some bizarre reason. You and Fife rub your greedy little hands together, saying we are rich now, Pinky. Now we take over the world!

You two scheme to sell the water for $1,000 per gallon, and you for damned well know there are still plenty of tech industry betas with plenty of cash on hand to pay, and they will pay.

But fucking hell. StA does not want to collude. He's still selling water at reasonable prices!

Do you admit that your potential customers will now tell you to go fuck a donkey and purchase my water instead at reasonable prices?


This isn't graduate level economics, DB. Please tell me you understand this simple economic reality. Your ability to price gouge is dependent on your potential competitors agreeing to also price gouge. This means all the sellers must collectively corner supply since they would be colluding on prices (cartel) or one person locks up all the supply (monopoly).

[DBTrek]

I agree your water will sell first, and if you have an adequate supply and delivery system in place to meet the entire demand, then Fife and I get nothing.

But if your water runs dry after only meeting half of the demand, or if your delivery mechanism can’t meet the entire demand before people start dropping from dehydration, guess whose water just went up to $1300 per gallon.


So yes, I agree with your general summation.

[Fife]

The actual point is that us three jimmies ain't "cornering" shit, no matter how we collude, or just have a Mexican standoff and kill each other. The entire civilized world, in a free country, will be busting ass to get that high priced water (and emergency weed, I'm sure) into the Seattle disaster zone. We may be on the ground the "firstest with the mostest," but our position is HIGHLY fluid, and fleeting.

There will be a cocktail of the Walmart, the Target, Joe Sixpack, and some extras from The Walking Dead, all getting their shit in gear to get water, food, generators, fuel, and who knows what else into the zone, either for lead-loss positive PR for the brand, profits, or who knows what.

We ain't the federal government, broheims. We can't just tell the rest of the civilized world to stay of our corner, with our captive, starving, and desperate customers, willing to sell their daughters into slavery for a gallon of gas.

Not rocket science.

[Speaker to Animals]

I agree your water will sell first, and if you have an adequate supply and delivery system in place to meet the entire demand, then Fife and I get nothing.

But if your water runs dry after only meeting half of the demand, or if your delivery mechanism can’t meet the entire demand before people start dropping from dehydration, guess whose water just went up to $1300 per gallon.


So yes, I agree with your general summation.

Excellent point.

Now your next strategy is to horde your supplies of water between you and Fife, and wait for my water supply to sell out. Then you re-enter the market and are able to price gouge precisely because, after I am sold out, you have the entire water supply cornered between the two of you, and the two of you can now operate like a cartel.

The salient points here being: (1) You can only engage in price gouging if all the sellers agree to collude (explicitly or implicitly) to engage in price gouging. (2) In the example above, in order for you two to maximize your profits via price gouging, you have to withhold goods from the market, potentially hurting other people, and almost certainly not efficiently allocating goods and resources AT ALL.

I think we can all agree on my first point; that the condition necessary to engage in price gouging is similar to the condition necessary to maintain a cartel or a monopoly. Agreed?

[Fife]

Negative.

Collusion is unnecessary for the wild argument you are making; and probably irrelevant. You're still thinking of pricing always being the decision of some kind of cartel, and in some kind of closed up (is that what you mean by "cornered?") market. Pricing, in a free country, is a one-on-one affair on the micro level. Without an army (the baddest army on the block; big and bad enough to turn away the Walmart) to back the cartel up, it seems nonsensical. Utterly nonsensical.