Scalping goods during a panic - price gouging serves a functional purpose - Politics Forum.org | PoFo

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On March 1, the day after the first coronavirus death in the United States, brothers Matt and Noah Colvin set out in a silver SUV to pick up some hand sanitizer. Driving around Chattanooga, Tennessee, they hit a Dollar Tree, then a Walmart, a Staples and a Home Depot. At each store, they cleaned out the shelves.
Over the next three days, Noah Colvin took a 1,300-mile road trip across Tennessee and into Kentucky, filling a U-Haul truck with thousands of bottles of hand sanitizer and thousands of packs of antibacterial wipes, mostly from “little hole-in-the-wall dollar stores in the backwoods,” his brother said. “The major metro areas were cleaned out.”
Matt Colvin stayed home near Chattanooga, preparing for pallets of even more wipes and sanitizer he had ordered, and starting to list them on Amazon. Colvin said he had posted 300 bottles of hand sanitizer and immediately sold them all for between $8 and $70 each, multiples higher than what he had bought them for. To him, “it was crazy money.” To many others, it was profiteering from a pandemic.​

https://www.yahoo.com/news/17-700-bottl ... 35689.html


Some of you will complain about what these brothers did (price gouging, scalping goods, opportunistically taking advantage of an emergency), but this is the free market at work, and I believe it does serve some beneficial purpose.

At first glance, this might look like one of the flaws of capitalism, but I think with some deeper analysis, we will be able to see the functionality of the invisible hand.


Why didn't the stores themselves raise their prices, to capture maximum profit? Ideally that's what should have happened.

When those stores did not raise their prices in accordance with the increase in demand, that leaves open the door for hoarding. Prices are one of the ways to allocate scarce goods. Higher prices will be an incentive for one person not to just go in there and buy loads and loads more than they need.

By buying up all the goods and reselling them at a higher price, these brothers helped, in a way, ensure a more even and equal distribution of the scarce emergency goods.

The second thing some of you might take issue with is, why should the store itself be allowed to price gouge in an emergency?
Well, that's one of the perks of running a business. If they can gain greater profit during an emergency, then they will be able to offer lower prices the rest of the time. And the potential to make high profits during an emergency can act as an incentive to keep larger amounts of merchandise in inventory than the business otherwise would. This can end up benefitting the consumers. We know that supply increases in proportion to price, and so if a business can charge higher prices during an emergency, there is likely to be a larger supply, the business will have kept more emergency goods for sale, for such an occasion.

The last reason is that if businesses can charge higher prices during an emergency, they can also pay their suppliers higher prices, and if the suppliers get paid higher prices, they can provide the goods faster, and the business will be able to restock shelves.

Those who complain about price gouging during an emergency don't really understand economics.

Sorry, but a business has no responsibility to stockpile all the goods you will need in an emergency, for your convenience, to just buy them like you would in a normal situation. A business would have to stockpile a lot of goods to fully meet the demand in an emergency, and by its very nature, emergencies do not happen that often, so it wouldn't make much financial sense for that business to stockpile things just to be ready for an emergency. Not unless there was lots of money to be made.
It's actually pretty economically expensive to prepare for something you will most likely never need, or only seldom use. At that should be reflected in the prices. Otherwise the business could have paid lots of money for goods it will never be able to all sell, and meanwhile those goods could be sitting there taking up valuable inventory space for years. Many will not realize this, but there is an economically big cost to store things on site. (If that wasn't the case, renting a storage unit would be a lot cheaper than it is)
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