Tuesday, June 17, 2008
Price Gouging
I work at a truck rental counter, and at the end of the month, or anytime we're really busy, we'll boost our prices up. Part of the reason we do this is that our competitors don't, so they won't have a truck for people who walk in needing one. Worse, some will get stiffed on a reservation, and their only compensation might be $50, and the difference could be a lot more.
Arnold Kling discussed in his commentary on Russell Roberts' forthcoming book that it is particularly frowned on for people in catastrophic situations to find themselves faced with having to pay more for their circumstances. That's the easy way to make the convincing case, but the case is just a lot weaker as a result anyway.
There are a few problems with this. In the first place, those who are in the greatest need by definition have the most inelastic demand, and therefore will most likely have the greatest willingness to pay. If someone is willing to pay, then, it seems as though it should be fair for them to do so. Those who can do without, can wait until the supplies come in, or can make it a few towns over to get the supply should do so - not only will they save money, making them better off, but they free that supply for the more desperate. The one who has whatever is in such great need is really doing quite a favor for those individuals, and it makes sense to reward him accordingly. That's the standard economist response, and it will appease most people who already agree with it.
Another fundamental problem would be one of lying and cheating. Those who are not willing to pay more reveal a preference different from those who are. If everyone who came up with a sad story got a truck for the same normal weekday rate, then everyone would make up such a story for their discount. When you consider this, allowing for need would lead to either:
It also should be acknowledged also that there are planning considerations to be made. A month ahead of time, more of a good can be ordered, etc. In truck rental land, this means that one way trucks leaving busy inbound locations can be practically given away to outbound locations. A week ahead of time, trucks can be picked up from nearby locations that do not need them. Both of these are to some degree costly, and often they will be done in anticipation of future reservations. When someone walks in on the last Saturday of the month and needs a truck with no reservation, more trucks can not simply be picked up - this is where there is rationing. One has to think, though, why would anyone just realize that they have to move and need to get a truck? People generally know when their apartment lease is about to end, and moving is something that should require ample preparation. Reasons for people to move suddenly generally have to do with either suddenly separating/divorcing/breaking up with a wife/girlfriend, going to jail, and eviction, all of which are they types of things that one can avoid. In fact, it seems as though these things make certain events more costly, and given that these are undesirable events, that should be a good thing.
It strikes me, though, that if I'm renting a truck, I don't want the guy at the rental counter to pass judgement over me, I just want him to do his job and get me what I want. Isn't there some information that should be left private, and why not let them charge more for me to not have to divulge too many private details? If you want to divulge that information, that's fine, but should you really expect a business to do you a favor when you are down on your luck? It is a fine and noble thing to give with one's own money, but it is quite damnable to give what is not your own, as that is really stealing.
Arnold Kling discussed in his commentary on Russell Roberts' forthcoming book that it is particularly frowned on for people in catastrophic situations to find themselves faced with having to pay more for their circumstances. That's the easy way to make the convincing case, but the case is just a lot weaker as a result anyway.
There are a few problems with this. In the first place, those who are in the greatest need by definition have the most inelastic demand, and therefore will most likely have the greatest willingness to pay. If someone is willing to pay, then, it seems as though it should be fair for them to do so. Those who can do without, can wait until the supplies come in, or can make it a few towns over to get the supply should do so - not only will they save money, making them better off, but they free that supply for the more desperate. The one who has whatever is in such great need is really doing quite a favor for those individuals, and it makes sense to reward him accordingly. That's the standard economist response, and it will appease most people who already agree with it.
Another fundamental problem would be one of lying and cheating. Those who are not willing to pay more reveal a preference different from those who are. If everyone who came up with a sad story got a truck for the same normal weekday rate, then everyone would make up such a story for their discount. When you consider this, allowing for need would lead to either:
- Invasion of privacy to ensure stories are true or
- The destruction of the rationing mechanism in the price system
It also should be acknowledged also that there are planning considerations to be made. A month ahead of time, more of a good can be ordered, etc. In truck rental land, this means that one way trucks leaving busy inbound locations can be practically given away to outbound locations. A week ahead of time, trucks can be picked up from nearby locations that do not need them. Both of these are to some degree costly, and often they will be done in anticipation of future reservations. When someone walks in on the last Saturday of the month and needs a truck with no reservation, more trucks can not simply be picked up - this is where there is rationing. One has to think, though, why would anyone just realize that they have to move and need to get a truck? People generally know when their apartment lease is about to end, and moving is something that should require ample preparation. Reasons for people to move suddenly generally have to do with either suddenly separating/divorcing/breaking up with a wife/girlfriend, going to jail, and eviction, all of which are they types of things that one can avoid. In fact, it seems as though these things make certain events more costly, and given that these are undesirable events, that should be a good thing.
It strikes me, though, that if I'm renting a truck, I don't want the guy at the rental counter to pass judgement over me, I just want him to do his job and get me what I want. Isn't there some information that should be left private, and why not let them charge more for me to not have to divulge too many private details? If you want to divulge that information, that's fine, but should you really expect a business to do you a favor when you are down on your luck? It is a fine and noble thing to give with one's own money, but it is quite damnable to give what is not your own, as that is really stealing.
Labels: Economic Stuff
