Kamala Harris Wants to Ban Price Gouging. What Do Economists Say?

The line between gouging and normal market forces can be pretty thin. And stopping it is no easy feat either.

By Justin Lahart of The WSJ.  Excerpts:

"Surveys conducted by Harvard University economist Stefanie Stantcheva show that many people—Democrats in particular—believe that corporate greed is to blame for inflation. [I have links to related posts on how people are dealing with inflation]

The food industry has pushed back hard on that belief, arguing that the rise in prices has to do with the extraordinary economic reordering caused by the pandemic, which snarled supply chains, pumped government money into the economy and spiked demand."

"While food inflation has eased some recently, prices remain much higher than they were before the pandemic. As of July, consumer prices for food at home were 26% higher than they were at the end of 2019, whereas the prices for goods excluding food and energy items were up just 14%. Food prices hit hard psychologically too—people take frequent trips to the grocery store, and can skimp only so much on what they eat."

"identifying price gouging, and crafting policies against it, can be difficult.

Rules against price-gouging can in effect become price controls. Standard economic theory shows that imposing a price ceiling on a product can discourage sellers, reducing the amount of a product that gets sold, leading to shortages. Rent-control policies are an example of a price ceiling that has become a staple of introductory economics textbooks, and as a group, most economists think rent control is a bad idea.

“It can be very hard to create any price control that is not gameable,” said Michael Sinkinson, an economist at Northwestern University’s Kellogg School of Management who was also on Biden’s Council of Economic Advisers. “How do you set a price control? What is the right benchmark?”"

"Some economists contend that raising prices in these circumstances can be predatory, because supply is limited to whatever businesses have on hand. But others argue that the signal prices send are important: A jump in the price of water at an island that gets hit by a hurricane creates an incentive for water to get shipped in quickly, while an artificially low price during a time of shortage might encourage hoarding."

"the food business isn’t a monopoly—most people, but not all, have the option of going to another store if one store raises its prices too much. Among economists, said Mankiw [Harvard economist Greg Mankiw], “Our assumption is that firms are always greedy and it is the forces of competition that keeps prices close to cost.”"

Related posts:

Costco and Sam’s Club Aisles Are Full of Gen Z Shoppers: With food prices still high, shoppers look for ways to team up with roommates, neighbors and family (2024)

Inflation is mentally taxing (2024)

Inflation is mentally taxing. Dealing with a straitened budget exacts a psychological toll as well as a financial one

Store Brands Are Filling Up More of Your Shopping Cart (2024) 

People are on the look out for cheaper alternatives due to inflation

Consumers Fed Up With Food Costs Are Ditching Big Brands (2024) 

One thing that I always talked about with inflation was that one of its costs was all the things we had to do to avoid it. Consumers are making 8% more trips to different retailers as inflation continues to upend household budgets. They are going to more stores to find lower prices. But it costs time to do that and probably more money on gas.

Are Americans Worrying Too Much About Inflation? Two opposing views (2024)

The Era of One-Stop Grocery Shopping Is Over (2024)

When workers were paid twice a day and given half-hour shopping breaks (Germany, 1923) 

By mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods. However, by this time, more and more often, shops were empty. Storekeepers could not obtain goods or could not do business fast enough to protect their cash receipts. Farmers refused to bring produce into the city in return for worthless paper. The requirements to calculate and recalculate commercial transactions in the billions and trillions made it practically impossible to do business in paper Marks.