Saturday, October 08, 2005

Price Gouging

For over a month now I have been in discussions with coworkers over the problem of supply and demand.... especially in times of need. I Just today looked at Walt Williams Sept 28th Column on this very topic.

Hurricane Rita provided us with another evacuation lesson as millions sought to leave Houston and Galveston. Gasoline stations ran out of gas leaving hundreds of motorists stranded. Many abandoned their cars. Police officers were deployed to carry gas to motorists whose tanks were empty. Texas authorities also asked the Pentagon for help in getting gas to stranded motorists. Much of the blame for the shortage rests at the feet of Texas Attorney General Greg Abbott, who recently ordered that penalties of up to $20,000 be imposed per incident of price-gouging. You say, "How come you blame Greg Abbott?" Let's look at it.

When the hurricane evacuation order came, there was an immediate change in the demand conditions for gasoline; namely, demand became much greater than the available supply. Retailers, in fear of prosecution by the attorney general, didn't do what would have brought demand more in line with the available supplies of gasoline -- raise prices.

Suppose a family evacuating Houston chose to make a 146-mile drive to stay with relatives in Austin. Their car has a half a tank of gasoline -- plenty to get to Austin -- but just to be safe, they decide to fill up. What do you think they might do if they expected to pay $2.75 a gallon but when they got to the gas station they found the gas selling for $3.75? I bet they'd say, "The heck with that; we'll fill up in Austin." That's wonderful; they've voluntarily made gas available for someone running out of gas. In my book, for a motorist who's running on empty, gas available at $3.75 a gallon is preferable to gas being unavailable at $2.75 a gallon.

Many can't seem to get past the idea that the Gas station is going to make a much higher profit on the gas.... Many can't focus on the idea that those who get there first might be less inclined to fill up if it costs more to do so.

Just asking someone not to take more than they need is crazy.... Having to pay more makes you think before you buy.... Do I really need this? Those about to be stranded would say yes, and fill up....

We need to look at how we term something "gouging"

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