They pop up in almost every crisis. During hurricanes, they
sell boards for windows and bottled water at inflated prices. After a flood,
they always seem to have a stockpile of bleach to kill mold in water-damaged houses.
During the current crisis, these keyboard capitalists have snapped up supplies of
antiviral masks and hand sanitizer and are attempting to profit by reselling
A report by USA
Today found that prices of about one in six products sold online had spiked
to levels that were 50 percent above the 90-day average. This included a
10-pack of N95 medical masks which normally retailed for $18.20 selling at $199.99
and a 12-pack of 8-ounce bottles of Purell hand sanitizer that had increased
from $30 to $159.99.
While some state and local governments, as well as online
retailers themselves, are attempting to
crack down on price gouging, the reality is that price gougers are
performing an important service for the public. By allowing prices to rise in
tandem with demand, price gougers help to ensure that items remain available to
those who need them when panic buying takes hold.
We have seen examples of this mob mentality in recent weeks.
About three weeks ago, when the Coronavirus first started to spread in the US,
I was one of the people who decided to buy a few masks as a precaution. Unfortunately,
I made this decision a few days too late. When I went around town and looked on
the internet, buyers had picked stores clean of every N95 mask, with the
exception of a couple of $50 respirators that I found at a nearby Home Depot.
Price sensitivity kicked in and I left these on the shelf. I
knew enough about the virus to know that my family was not in a high-risk
category so I rejected the idea of spending $200 to outfit my family with
something that we would probably never use, but, as I walked away, an older lady
was putting one of the respirators into her cart.
As it turns out, the CDC
now says that masks don’t do much to protect you from COVID-19. Instead, masks
should be worn by those who are already infected to prevent them from spreading
the virus when they cough or sneeze. An exception to that is people who are
caregivers for Coronavirus patients.
The problem is that retailers did not adjust their prices to
match the sudden increase in demand for masks. If you didn’t get a mask before
they sold out, you probably can’t find one now. As soon as a new shipment comes
in, they sell out because the price is not allowed to rise.
That’s where price gougers come in. When they take some of
the available supply of masks and raise the price, it discourages people who don’t
need them from buying them just in case. These days, if you see a pack of masks
for $20, you’ll grab it. If you see a pack of masks for $200, you’ll think twice
and not buy unless you really need it.
The run on toilet paper is another case of panic buying that
could be averted by raising prices. My wife recently ran into a woman who had
an entire shopping cart loaded with toilet paper. She was stocking up because
she believed that “the ships were stuck in the middle of the ocean” and couldn’t
deliver their cargo of precious booty paper to American stores. Because the TP
was available at regular price, the woman took all she could carry, leaving little
or nothing for the next customer who may be down to his last roll at home. If
the store had increased its price by five or ten times, the hoarder would not
have bought a veritable cartload of TP and would have left some for other
shoppers who might need it more.
So when well-meaning people crack down on price gougers,
they are effectively helping to create shortages. This was the case with Matt
and Noah Colvin of Chattanooga, Tenn. The brothers bought $17,000 worth of
hand sanitizer and were reselling it on Amazon along with wipes, masks, and
other supplies. Amazon delisted their items and now the Colvins are stuck with
a garage full of medical supplies that they aren’t allowed to sell. Many people
around the country would be willing to pay inflated prices for the items, but instead,
they are gathering dust.
While high prices anger people, the reality is that buyers have
a choice of whether to enter into the transaction. If you don’t need to pay $70
for the Colvin’s hand sanitizer, then you won’t. If you are willing to accept
their price, you probably really need it.
Price gouging is essentially a free market activity.
Eliminating price gouging requires price controls, and, as conservatives have
pointed out for decades with respect to health care, price controls invariably
lead to shortages and rationing in periods of high demand.
While price gougers won’t win many friends, they do form an
important part of the balance between supply and demand. If you need a medical
mask or hand sanitizer these days, the odds are good that you’ll have to get it
from a price gouger who kept people like the hoarder lady from locking it in
their own closets.