"Why should products just go to the lucky and well-connected?" A typical response is, "Why should products just go to the rich?" A complex debate ensues. Your rhetorically palatable exception not so palatable any more. Instead you need a rhetorically palatable rejoinder to that response.
How about stores putting up signs saying something like "We are temporarily increasing prices because of supply shortages. The higher prices are to discourage unnecessary purchases so that some product remains for those that need it the most."
Practically speaking, I don't know if sellers can actually raise prices to effectively prevent shortages. What are they going to do, up the unit price by five cents every hour until there's a better equilibrium? They could raise the price by ten dollars all at once, in which case there would be no shortage, and also no revenue. (My hypothetical prices assume low cost goods; just multiply by 10 or 100 for more expensive stuff.) I don't think most businesses are interested in optimizing pricing strategies to prevent shortages, because more optimization takes work, which costs money. How can you tell if you will be more profitable vs. the status quo(especially if you assume the "supply chain issues" will be temporary)?
Interestingly enough, the prices do increase in response to shortages, but *only on Ebay*. When there is a shortage, you can almost always buy the product (new, in original unopened packaging), but only on Ebay, where apparently the rules of fairness do not work.
This means that extra money that the manufacturers could have earned and used for expanding the production capabilities, are actually going to scalpers.
I'm just a weirdo and cannot fathom why a human would so staunchly oppose another human controlling their property as they see fit. Such disgusting arrogance.
What is rhetorically effective when you can get the other party to listen attentively to you for five minutes may not be rhetorically effective when you have only a few seconds to make your case. In the most superficial view, “It’s OK to raise prices if there’s a shortage” doesn’t sound good; I don’t think you or anyone else can sell it to the public. Atavistic fairness norms are too deeply ingrained.
I recall when rice and pasta was temporarily limited to two items per person back in 2020 and I argued that raising prices would be a better move, but it's hard to imagine how more of those things could be produced to fill the demand given the short time-frame, and to my knowledge most people adhered to the rules. Is there a big benefit to the floating price approach that would be salient to people who despise 'price gouging'?
I haven't seen a ton of examples of goods shortages in anything but the short term. Price increases seem ubiquitous. This doesn't seem like a huge problem.
The two long running shortages I've seen are labor and long lead time durable goods (like computer chips). Production of which can't be spun up quickly at any price and are sticky.
When demand exceeds supply, prices increase, which incentivise others to increase supply to get in on the action which brings prices to normal again. When this works, everyone is better off. I mostly accept this argument.
But during our current issues it's not really like that, because the whole thing is caused by the fact that supply *cannot* be increased. So raising prices does not make things better for everyone. In fact, the vendor doesn't earn any more profits because their increased profit per item is negated by the fact that they don't sell as many. The rich get what they want, but at a higher price, and the poor don't get what they want, and have the added resentment of knowing the rich win again. I really don't see how this could be considered anywhere close to an optimal solution
Raising prices during a shortage is called "Price Gouging" and is considered deeply immoral by most. In serious cases, it's seen as exploiting people in an emergency.
So I'm deeply sceptical this rhetorical device would have much si=uccess.
Good piece. A few years back, I got mostly roasted for posting on Facebook that the Covid vaccine should be sold at market prices. This was right after the vaccines came out in December 2020. I did say Medicare should arrange a bulk purchase in such a situation.
Bryan and everyone, what do you think? I’m not sure I was right.
One of the things that has made the US such a wealthy country is a business culture that includes the idea of a “fair price”. Although it’s generally legal to charge any price the market will bear – even taking advantage of buyer ignorance or desperation – mainstream American culture supports the notion that there is a “fair price” – *the price that an informed buyer would pay in a competitive market, considering circumstances of location, quality, convenience, etc.*
So, for example, Americans frown upon selling generators for $10,000 during a blackout, if they go for $1000 at normal times. Or the rural tow truck driver who wants $2000, cash, to pull your car out of the muck, just because the next closest tow truck is hours away.
Many economists wouldn’t have a problem with that – in a certain narrow sense, those kinds of price spikes (“gouging”, if you like) may be efficient. But a society in which most sellers feel revulsion toward “taking advantage” is one in which buyers are more willing to engage in transactions. If buyers feel they’re unlikely to get screwed because of their ignorance (as in the the case of AT&T here) or desperate circumstances, then there is more commerce and less effort expended in investigation of deals and precaution against getting caught by local monopolists. In short, transaction costs are lower for everyone.
I’m not advocating legislation here. But the American attitude has it merits.
"Why should products just go to the lucky and well-connected?" A typical response is, "Why should products just go to the rich?" A complex debate ensues. Your rhetorically palatable exception not so palatable any more. Instead you need a rhetorically palatable rejoinder to that response.
How about stores putting up signs saying something like "We are temporarily increasing prices because of supply shortages. The higher prices are to discourage unnecessary purchases so that some product remains for those that need it the most."
Practically speaking, I don't know if sellers can actually raise prices to effectively prevent shortages. What are they going to do, up the unit price by five cents every hour until there's a better equilibrium? They could raise the price by ten dollars all at once, in which case there would be no shortage, and also no revenue. (My hypothetical prices assume low cost goods; just multiply by 10 or 100 for more expensive stuff.) I don't think most businesses are interested in optimizing pricing strategies to prevent shortages, because more optimization takes work, which costs money. How can you tell if you will be more profitable vs. the status quo(especially if you assume the "supply chain issues" will be temporary)?
Interestingly enough, the prices do increase in response to shortages, but *only on Ebay*. When there is a shortage, you can almost always buy the product (new, in original unopened packaging), but only on Ebay, where apparently the rules of fairness do not work.
This means that extra money that the manufacturers could have earned and used for expanding the production capabilities, are actually going to scalpers.
I'm just a weirdo and cannot fathom why a human would so staunchly oppose another human controlling their property as they see fit. Such disgusting arrogance.
What is rhetorically effective when you can get the other party to listen attentively to you for five minutes may not be rhetorically effective when you have only a few seconds to make your case. In the most superficial view, “It’s OK to raise prices if there’s a shortage” doesn’t sound good; I don’t think you or anyone else can sell it to the public. Atavistic fairness norms are too deeply ingrained.
I think you need a public choice explanation of the "fairness" pricing norm to solve it.
I recall when rice and pasta was temporarily limited to two items per person back in 2020 and I argued that raising prices would be a better move, but it's hard to imagine how more of those things could be produced to fill the demand given the short time-frame, and to my knowledge most people adhered to the rules. Is there a big benefit to the floating price approach that would be salient to people who despise 'price gouging'?
I'd phrase it as "shortages are less fair than raising prices"
I haven't seen a ton of examples of goods shortages in anything but the short term. Price increases seem ubiquitous. This doesn't seem like a huge problem.
The two long running shortages I've seen are labor and long lead time durable goods (like computer chips). Production of which can't be spun up quickly at any price and are sticky.
I didn't find this convincing at all.
When demand exceeds supply, prices increase, which incentivise others to increase supply to get in on the action which brings prices to normal again. When this works, everyone is better off. I mostly accept this argument.
But during our current issues it's not really like that, because the whole thing is caused by the fact that supply *cannot* be increased. So raising prices does not make things better for everyone. In fact, the vendor doesn't earn any more profits because their increased profit per item is negated by the fact that they don't sell as many. The rich get what they want, but at a higher price, and the poor don't get what they want, and have the added resentment of knowing the rich win again. I really don't see how this could be considered anywhere close to an optimal solution
Raising prices during a shortage is called "Price Gouging" and is considered deeply immoral by most. In serious cases, it's seen as exploiting people in an emergency.
So I'm deeply sceptical this rhetorical device would have much si=uccess.
Good piece. A few years back, I got mostly roasted for posting on Facebook that the Covid vaccine should be sold at market prices. This was right after the vaccines came out in December 2020. I did say Medicare should arrange a bulk purchase in such a situation.
Bryan and everyone, what do you think? I’m not sure I was right.
Missing words ("if it"): "Why is this likely to be highly effective is adopted? "
From **AT&T’s roaming fees and the American Way** (my blog, https://mugwumpery.com/?p=208 )
One of the things that has made the US such a wealthy country is a business culture that includes the idea of a “fair price”. Although it’s generally legal to charge any price the market will bear – even taking advantage of buyer ignorance or desperation – mainstream American culture supports the notion that there is a “fair price” – *the price that an informed buyer would pay in a competitive market, considering circumstances of location, quality, convenience, etc.*
So, for example, Americans frown upon selling generators for $10,000 during a blackout, if they go for $1000 at normal times. Or the rural tow truck driver who wants $2000, cash, to pull your car out of the muck, just because the next closest tow truck is hours away.
Many economists wouldn’t have a problem with that – in a certain narrow sense, those kinds of price spikes (“gouging”, if you like) may be efficient. But a society in which most sellers feel revulsion toward “taking advantage” is one in which buyers are more willing to engage in transactions. If buyers feel they’re unlikely to get screwed because of their ignorance (as in the the case of AT&T here) or desperate circumstances, then there is more commerce and less effort expended in investigation of deals and precaution against getting caught by local monopolists. In short, transaction costs are lower for everyone.
I’m not advocating legislation here. But the American attitude has it merits.