"But shouldn’t people charge low prices because it’s the right thing to do? Maybe. People respond to a complex mix of incentives and motivations, and one of the more heartening responses to the COVID-19 outbreak has been the way in which a lot of publishers have opened up their online products for students and instructors suddenly faced with moving their courses online. Benevolence is one motivation among many, though, and the fact remains that we get a lot more hand sanitizer, toilet paper, and other supplies when we make room for people who are just in it for the money.
You may not like their motivations, but they’re doing something your state’s governor and attorney general aren’t doing. Namely, they’re getting valuable emergency supplies into your hands. Maybe humanitarian impulses are elegant and more civilized ways of getting goods into the hands of the needy compared to the profit motive, just as a lightsaber might be an elegant and more civilized way of killing an enemy than a blaster. At the end of the day, though, both motivations (just like both weapons) get the job done.
As the economist Yoram Barzel explained in his under-appreciated paper “A Theory of Rationing by Waiting,” it’s hard to give away money in a way that actually helps the people we want to help. As economists point out whenever price ceilings come up, price ceilings don’t reduce what we pay. They change how we pay, with more of the putative benefits of our purchases being consumed by search costs. Someone waiting in a long line for low-priced hand sanitizer and toilet paper is incurring a cost (his valuable time) but not producing a benefit for someone else.
Here’s a real-life illustration. Various outlets report that a Tennessee man bought 17,700 bottles of hand sanitizer with a view toward selling them at a markup online. Amazon refuses to do business with him, which is their right as a private firm. However, they would probably expose themselves to multiple price-gouging prosecutions were they to allow him to sell hand sanitizer at a hefty markup via their site.
The perverse result is that instead of 17,700 bottles of hand sanitizer at a price of $10 or $20 or even $100, people can, at least in the very short run, get no hand sanitizer at any price. The effective price of a bottle of hand sanitizer when there is none to be had, as Michael Munger has pointed out, is effectively infinity."
You may not like their motivations, but they’re doing something your state’s governor and attorney general aren’t doing. Namely, they’re getting valuable emergency supplies into your hands. Maybe humanitarian impulses are elegant and more civilized ways of getting goods into the hands of the needy compared to the profit motive, just as a lightsaber might be an elegant and more civilized way of killing an enemy than a blaster. At the end of the day, though, both motivations (just like both weapons) get the job done.
As the economist Yoram Barzel explained in his under-appreciated paper “A Theory of Rationing by Waiting,” it’s hard to give away money in a way that actually helps the people we want to help. As economists point out whenever price ceilings come up, price ceilings don’t reduce what we pay. They change how we pay, with more of the putative benefits of our purchases being consumed by search costs. Someone waiting in a long line for low-priced hand sanitizer and toilet paper is incurring a cost (his valuable time) but not producing a benefit for someone else.
Here’s a real-life illustration. Various outlets report that a Tennessee man bought 17,700 bottles of hand sanitizer with a view toward selling them at a markup online. Amazon refuses to do business with him, which is their right as a private firm. However, they would probably expose themselves to multiple price-gouging prosecutions were they to allow him to sell hand sanitizer at a hefty markup via their site.
The perverse result is that instead of 17,700 bottles of hand sanitizer at a price of $10 or $20 or even $100, people can, at least in the very short run, get no hand sanitizer at any price. The effective price of a bottle of hand sanitizer when there is none to be had, as Michael Munger has pointed out, is effectively infinity."