Perception of fairness is an important aspect of functioning markets too. People are happy to participate in a market with well-enforced contracts because they perceive it as fair.
If, for example, upon purchasing a new iPhone from the Apple Store it was revealed to be an older model in a newer box, consumers would be rightly angry, even if they had agreed to getting that phone in the fine print. Apple of course would never do this, since the risk to their reputation would exceed anything they could hope to gain, but the same dynamic doesn’t really work in price gouging during a disaster scenario.
People raising prices in a disaster give the impression that they are benefiting off the desperation of others (which is true). Although they may make the people better off had they not had the ice in the first place, they create the feeling of an asymmetrical deal, where the beneficiaries are only in that position of superior bargaining power because of some misfortune that has befallen the other person. Under normal circumstances, the ongoing reputation risk discourages “unfair” behavior, but under one-off disasters there’s no reputation to preserve, making “unfair” market behavior, that would usually be punished in a free market by consumers not purchasing the good or service anymore, squeeze by.
I’d probably sign away my entire net worth if it meant getting a glass of water minutes before dying of thirst, but that wouldn’t stop me from feeling incredibly resentful about it. And I certainly wouldn’t be thanking the guy for taking advantage of my temporary misery.
It’s the same reason a market may not be particularly good at regulating food sold at rest stops. Most customers will never return, so the restaurant can get away with providing lower quality (or even sickening) food, as their reputation is always back to neutral when new people stop for lunch on a journey. The market dynamic that normally incentivizes fair-dealing (an incredibly important perception for their to be efficient markets), disappears, without some regulatory body like the FDA verifying the food is safe to eat.
Markets are great, but there are some circumstances on the margins where the normal logic doesn’t hold.
The answer to your rest stop regulation problem comes back to reputation. Notice what brands sell food in places where people only tend to visit once? Think of rest stops, tourist traps (eg. Times Square in NYC), airports.
This is a solution in some scenarios, but not others, unless you think that all restaurants can or should be national chains.
When it comes to a lone restaurant in a small town on a major highway, there's a lot more incentive to "cheat" on food quality, when there are few other options and the customer base is always "new". The analogy can carry over to anything that has little reputational risk and high downside for the consumer if the producer "cheats".
When it comes to gouging price during a crisis, it really doesn't matter the quality of goods provided, or if they're especially safe, because the people doing the gouging are usually individuals from far out of town, meaning they carry almost no reputational risk. The one-off nature of the event and the desperate situation of the people being gouged will quite obviously leave people feeling resentful, even if they are better off in material terms than if the gouger didn't exist in the first place, just like with our person dying of thirst example signing away his entire net worth for a glass of water.
Even the most radical libertarian will allow for government interference in at least one area; The enforcement of contracts. If people were not held to their word, with no enforcement or punishment mechanism in place when they broke their word, overall production and trade would be seriously handicapped. There's ultimately no consistent moral belief that can claim that the enforcement of contracts is somehow special, but other government interference isn't, but because it increases the sense of "fairness" and confidence in the market, it is accepted for the value this function of government brings.
Price gouging is a more unique example than the enforcement of contracts, but it can definitely be argued that if it creates a sense of "unfairness" and resentment in people who would otherwise be strong supporters of the free market, it should be limited or outright banned, even if it creates a shortage.
The example in the article is obviously not comparable, since although the boss needs the employee to work, they are not experiencing a disaster where human lives are on the line.
Perception of fairness is an important aspect of functioning markets too. People are happy to participate in a market with well-enforced contracts because they perceive it as fair.
If, for example, upon purchasing a new iPhone from the Apple Store it was revealed to be an older model in a newer box, consumers would be rightly angry, even if they had agreed to getting that phone in the fine print. Apple of course would never do this, since the risk to their reputation would exceed anything they could hope to gain, but the same dynamic doesn’t really work in price gouging during a disaster scenario.
People raising prices in a disaster give the impression that they are benefiting off the desperation of others (which is true). Although they may make the people better off had they not had the ice in the first place, they create the feeling of an asymmetrical deal, where the beneficiaries are only in that position of superior bargaining power because of some misfortune that has befallen the other person. Under normal circumstances, the ongoing reputation risk discourages “unfair” behavior, but under one-off disasters there’s no reputation to preserve, making “unfair” market behavior, that would usually be punished in a free market by consumers not purchasing the good or service anymore, squeeze by.
I’d probably sign away my entire net worth if it meant getting a glass of water minutes before dying of thirst, but that wouldn’t stop me from feeling incredibly resentful about it. And I certainly wouldn’t be thanking the guy for taking advantage of my temporary misery.
It’s the same reason a market may not be particularly good at regulating food sold at rest stops. Most customers will never return, so the restaurant can get away with providing lower quality (or even sickening) food, as their reputation is always back to neutral when new people stop for lunch on a journey. The market dynamic that normally incentivizes fair-dealing (an incredibly important perception for their to be efficient markets), disappears, without some regulatory body like the FDA verifying the food is safe to eat.
Markets are great, but there are some circumstances on the margins where the normal logic doesn’t hold.
The answer to your rest stop regulation problem comes back to reputation. Notice what brands sell food in places where people only tend to visit once? Think of rest stops, tourist traps (eg. Times Square in NYC), airports.
This is a solution in some scenarios, but not others, unless you think that all restaurants can or should be national chains.
When it comes to a lone restaurant in a small town on a major highway, there's a lot more incentive to "cheat" on food quality, when there are few other options and the customer base is always "new". The analogy can carry over to anything that has little reputational risk and high downside for the consumer if the producer "cheats".
When it comes to gouging price during a crisis, it really doesn't matter the quality of goods provided, or if they're especially safe, because the people doing the gouging are usually individuals from far out of town, meaning they carry almost no reputational risk. The one-off nature of the event and the desperate situation of the people being gouged will quite obviously leave people feeling resentful, even if they are better off in material terms than if the gouger didn't exist in the first place, just like with our person dying of thirst example signing away his entire net worth for a glass of water.
Even the most radical libertarian will allow for government interference in at least one area; The enforcement of contracts. If people were not held to their word, with no enforcement or punishment mechanism in place when they broke their word, overall production and trade would be seriously handicapped. There's ultimately no consistent moral belief that can claim that the enforcement of contracts is somehow special, but other government interference isn't, but because it increases the sense of "fairness" and confidence in the market, it is accepted for the value this function of government brings.
Price gouging is a more unique example than the enforcement of contracts, but it can definitely be argued that if it creates a sense of "unfairness" and resentment in people who would otherwise be strong supporters of the free market, it should be limited or outright banned, even if it creates a shortage.
The example in the article is obviously not comparable, since although the boss needs the employee to work, they are not experiencing a disaster where human lives are on the line.