Prices
Just like we saw in my last post, in the short term, Consumer Demand is one of the strongest factors in setting prices.
While this is generally good - it incentivizes companies to produce what people want - it might create some very bad situations.
Catastrophes
In an emergy situation, many essential goods, like water, food, and medicine see a big increase in demand, either because people want to stockpile essentials or because supply lines were cut (or both!)
Price Gouging
In this situation, companies have an incentive to raise prices, that's the action that will maximize profits.
That's Price Gouging.
This is obviously bad, right?
Yes! People might have to use their life savings in order to get enough essentials to live through a storm or a power outage, for example, people might have to use part of their life's savings!
How this can be good
Just like Inequality, Price Gouging can be good, if it only happens to an extent:
Incentivize emergency production
Just like it happened for masks and other medical supplies at the begging of the pandemic, an increase in price will make it more attractive for companies to produce that product.
This means more of the needed goods will flow into the disaster area, which will lead to both more people having access to those essential goods AND an eventual decrease in price.
No hoarding
If essential goods are very expensive, then people will only buy what they really need, leaving more goods available for everyone else.
Conclusion
While Price Gouging is generally terrible, as it is only done in order to increase a company's short-term profits, it can actually do some good!
Plus, many businesses don't do this exactly because it hurts their relationship with their customers (and their long-term profits).
If you know of any more examples of Price Gouging, leave them in the comments!
Thanks for reading!
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Take a look at my last post, about Predatory Pricing: