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InsiderOnline Blog: November 2012

Price Coordination to the Rescue

Things are getting dicey at gas stations in the Northeast. [MSNBC, November1] What New York and New Jersey could use right now is some price-gouging. Seriously, explains Matt Yglesias:

The Christie administration fined a gas station for breaking price gouging rules back in September, and issued a press release before Sandy hit noting that case and explicitly warning retailers not to respond to the hurricane by raising prices. The failure to allow prices to adjust doesn’t magically eliminate the supply side problems, it just means that the gasoline is misollacated and lots of people need to waste time in line. You can also see that the combination of shortage and underpricing seems to be leading people to overconsume when they do get to the front of the line.

Last but by no means least, the lack of price gouging is harming things on the supply side. If it were possible to earn windfall profits by transporting gasoline into the affected areas, then human ingenuity would be finding ways to do it. But if you restrict retailers to earning merely ordinary profits, then people won’t take extraordinary measure to increase supply. [Slate, November 1]

Posted on 11/01/12 07:40 PM by Alex Adrianson

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