Q&A: Price Gouging
Price Gouging
Question
Is there a moral basis (as distinct from a halakhic or legal one) for demanding that a seller not gouge prices during a shortage?
A storm hits the city and a week-long power outage is expected. A generator store owner who has a thousand generators for sale raises the prices a hundredfold. On the one hand, this is now the product’s “true value” in terms of supply and demand. On the other hand, under normal circumstances he sold, and will sell, it at a completely different price.
There is an economic argument that prices are a sorting mechanism that selects the thousand customers who “want it most,” and that this is preferable to a fixed price, which in practice selects the thousand customers who “got there first.” What do you think of that argument? And if a seller is persuaded by that argument, should he later return the difference to those thousand customers? (Maybe there is something categorical here?)
Answer
There may be a moral problem with this in a case where the price demands a major sacrifice from the buyer, at various levels. An extreme case is when a person is very poor and has to spend all his money on food; it is not morally proper to raise food prices during a famine.
In other situations, it is mainly a question of supply and demand, and I do not see a moral problem with it.
All this is from the seller’s point of view. Of course, the authorities’ point of view is different. It is certainly possible that they would see fit to set a price ceiling on a certain product and limit free competition regarding it in certain situations, especially where there is no competition (a monopoly).