Price Gouging - Opposition To Laws Against Price Gouging

Opposition To Laws Against Price Gouging

Economists Thomas Sowell and Walter E. Williams, among others, argue against laws that interfere with large price changes. According to this view, high prices can be viewed as information for use in determining the best allocation of scarce resources for which there are multiple uses. Many liberal economists oppose price gouging legislation and argue that it prevents goods from going to individuals who value them the most. For example, after a storm has felled numerous trees in a locality, a rise in the price of chain saws will discourage their purchase by people with only a minor need for them, making them more available for those with the strongest need. Problems during the Siege of Paris (1870–1871), which critics attribute to price restrictions, are often held up as another example. With price gouging laws in place, producers are only able to charge a set price, then they have little additional incentive to increase supply to adversely impacted area; if producers are able to make extra profit then they will increase supply. These laws lead to after-market operations as consumers with the lowest opportunity costs buy up desired resources and attempt to resell them to public at higher prices.

In terms of fairness, anti-price gouging laws require producers to sell goods below their market-clearing price: the market clearing price is the amount at which quantity supplied is equal to quantity demanded. If goods are priced above their market-clearing price then there will be a surplus of goods and the converse leads to a shortage of goods. Under anti-price gouging laws, consumers are unable to buy the necessary goods which they desire in a time of need.

According to the neoliberal approach, anti-price gouging laws prevent allocative efficiency. Allocative efficiency refers to when prices function properly, markets tend to allocate resources to their most valued uses. In turn those who value the good the most will be willing to pay a higher price than those who do not value the good as much. According to Friedrich Hayek in The Use of Knowledge in Society, prices can act to coordinate the separate actions of different people as they seek to satisfy their desires. Prices fluctuate with changing desires and convey information to buyers and sellers about supply and demand of goods.

Many economists argue that laws against price increases serve only to restrict supplies of a good or service by reducing the incentive suppliers have to undertake any additional costs, hazards or inconvenience that may be required. They argue further saying that these price increases force consumers to ration goods thus increasing the longevity of certain resources in an emergency.