Unfair Shortages

Economists have long known that fairness matters in some markets. Concerts underprice popular tickets. Malls underprice chats with Santa Claus. Vendors underprice Pokemon cards. Hardware stores underprice snow shovels before blizzards.

During Covid, however, fairness norms became strangely ubiquitous. Lots of familiar products suddenly became unavailable at the market price. Or sometimes, at any price.

While “supply chain issues” was the popular explanatory slogan, anyone who remembers basic econ knows that’s superficial and misleading. No matter how much supply goes down, it will remain available for purchase as long as its price rises enough. Every “supply chain issue” story is a “fairness norm” story in disguise.

The ideal outcome, honestly, is for atavistic fairness norms to vanish. They’re a classic case of good intentions with bad results. Just let the price system work its magic! What good are low prices if the products you want aren’t even on the shelves?!

Alas, atavistic norms rarely die. But if you’re lucky, you can still evade them. Right now, businesses all over the world are taking advantage of rampant inflation to finally raise prices back to market-clearing levels. There’s safety in numbers: The more businesses “unfairly” raise prices, the less likely your customers are to notice or care that your business raised prices.

But are there any ways to evade atavistic “fair price” norms that don’t require two years of aggravating shortages? The classic evasion is to plead rising costs. It’s not unfair to raise prices if you’re simply responding to higher input costs, right? After all asking businesses to lose money isn’t fair either.

If the public can accept one exception to the rule that “raising prices is unfair,” though, why not another? I propose the following additional exception. An additional exception which is (a) rhetorically palatable, and (b) likely to be highly effective if adopted.

The additional exception: Raising prices isn’t unfair if there’s a shortage.

Why is this rhetorically palatable? Because you can at least plausibly argue that shortages are unfair! Why should products just go to the lucky and well-connected? Why shouldn’t businesses striving to pump up production of sporadically available goods get a bonus for their extra effort?

Why is this likely to be highly effective if adopted? Because “raising prices isn’t unfair if there’s a shortage” is an exception big enough to drive a truck through. After all, the main time when firms want to raise prices is precisely when there’s a shortage!

Ideally, we’d get rid of atavistic norms about the “fair price.” Say it loud, say it proud: The fair price is the market price. Since that’s unlikely to happen, though, the next best thing is to tack on a loophole. When is it fair to raise a price? When costs rise OR there’s a shortage. Logically, of course, the latter exception subsumes the former, but let’s keep that insight to ourselves.