Should we raise prices during a natural calamity?

There was a huge uproar when price of flights increased sharply during Chennai floods in 2015. Likewise, there is always this criticism on Uber/Ola who increase prices due to huge demand.

Prof.  Mark Steckbeck of Campbell University thinks otherwise. It was due to the high prices he could get milk  as snowfall was expected:

I stopped at the first three grocery stores along the way, only to find all three completely sold out of milk. Despite the impending panic, neither store increased its prices for things like milk and bread.

Walmart, just down the street from the third grocery store I visited, was my last hope. I figured that if Walmart was sold out of milk, I would go home empty-handed and the family would have to make do with what we had left in the refrigerator. Well, at least until the ice and snow melted, which, fortunately, in North Carolina would be in about two days.

I walked into Walmart and made a beeline for the dairy case only to find it empty. Walmart, too, had sold out of milk. It, too, didn’t increase the price of its milk, selling it for its normal price of $2.79 per gallon.

But wait! Next to this empty dairy case, I saw another dairy case with a sign taped to the door. Behind the door with the sign taped to it were dozens of gallons of milk.

 What did the sign say? “The price of Maola Milk is temporarily $6.50/gallon.” That was more than double what Walmart normally charged. I happily grabbed a gallon from the case, paid for it, and made my way home.

For most people, the higher price Walmart charged for this milk was an obvious affront to decency; a blatant example of a greedy corporation “gouging” its customers in a time of crisis and need.

Why are you waiting for others to act on what you apparently regard as morally superior behavior?

I see it differently. I was grateful for Walmart because by raising its price for the Maola brand milk it thwarted the greedy customers who, without consideration for others, snatch up two and three gallons. This is what happened with the Walmart brand milk and the milk sold in the other three stores I visited. By raising its price for Maola brand milk, Walmart gave people proper incentive to ration their consumption of it. They left plenty of the Maola brand milk for people like me who couldn’t make it to the store earlier. They didn’t do so out of concern for my welfare, but out of concern for their own welfare.

As an economist, I teach students about the benefits of what is derisively referred to as price gouging and why allowing prices to increase before and after a natural or man-made disaster is beneficial to those most in need. I am often asked something to the effect of, “How would you feel if it happened to you?” Well, it has happened to me and this is just one example of that.

Always tough to argue for price gouging in such cases…


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