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Notes -
What is "price gouging"?
I hear it a lot lately, specifically as something that grocery stores are doing with food prices.
My instinct is that if retailers raises prices, even if only because they think customers will pay more, and then customers do pay more, then that is the new market price. As such, there can't really be "gouging" by definition, no matter what price retailers set.
I think price gouging refers to suddenly raising prices in the wake of a supply shock, or to otherwise take advantage of customers who can’t go elsewhere, and it’s bad because it’s essentially a localized monopoly. For example, excessively pricing prison phone calls is price gouging, and it’s basically using county level corruption to establish a small-scale monopoly. Or suddenly raising the price on necessities in the wake of a natural disaster(eg bottled water after a hurricane).
This is a good response, but my instinct is still that market forces should still be in effect. If prison phone prices are too high, few prisoners will make calls and the provider should be incentivized to lower prices to maximize total profits. Likewise with bottled water.
There's nothing wrong with that position, but other people's instinct says otherwise. That's really all there is to it: price gouging doesn't feel fair to people regardless of what economists may say on the topic.
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