Price gouging, etc.

Introduction

I find myself mentioning “price gouging” in yet another text—that absurd politicians’ way of shoving responsibility for price inflation from themselves onto one group of victims. This moves me to write something a little more thorough than the typical few sentences on “price gouging”, and to address some similar problems.

In the big picture, there is a common problem with a disdain or aversion directed against market forces and individual choice, and/or an odd mentality that we all, businesses included, would have a weird anti-Randian duty to work for the common good instead of our own good, serving the government/state/whatnot like busy little bees serve a colony. (The weirder, as more self-serving/-favoring and Randian approaches, in the net, tend to leave society better or far better off than collectivism and the subjugation of the individual.)

Price gouging

Notes on terminology and scope

My writings arise from the rhetorical accusations of price gouging by various Leftist politicians, propagandists, whatnot, and their implication that it is a driving source behind price inflation. In this, the term has a broad and unspecific intent of roughly “Businesses raise prices more than they ‘should’!” or “[...] than is ‘fair’!”, or, viewed from a different perspective, “You pay too much at the grocery store because of evil, greedy capitalists!”, and this is the intent taken up here.

More narrow or more technical definitions can deviate from this, e.g. by imposing a criterion of very temporary crisis, say, that food prices might be doubled in the days after a hurricane landing. I might or might not address such meanings at a later date. For now, I merely note that portions of the below is often relevant in such more narrow cases too, including incentives and allocation.

I try to follow the convention of using “inflation” to refer only to inflation in the strict sense of an expansion of the money supply and preferring the more specific “price inflation” for an increase in the general price level. Note that there is often a causal connection from inflation to price inflation, but that it is not foolproof (especially, in the short term) and need not be linear. To boot, it can vary with what definition or measure of “money supply” and “price level” is used.

Main discussion

The accusation of price gouging has been raised on a great number of occasions and by a great number of politicians and/or Leftists in the wake of the politician-created price inflation of and after the COVID-countermeasure era.

This is usually fundamentally unfair, as the businesses at hand see themselves faced with increased energy costs, increased labor costs, larger bills from suppliers (who, of course, face similar issues), etc., that largely go back to political decisions, most notably relating to various aspects of the COVID-countermeasure era and failed or business-hostile energy politics. (With a number of similar problems on a smaller scale, including continual increases in regulation and other burdens, often relating to energy.) Then we have various other problems, including loss of customers due to, say, lockdowns and “social distancing” rules. While the effects of these have been varied (typical grocery stores, minor; many other stores, major; many restaurants, very major), they have often cut into profitability and forced price increases. For the accusation to be taken seriously, we more-or-less have to postulate that businesses have a duty to keep prices down even at the cost of severely reduced profits or, even, losses, of a threat of unviability of the business model, of a lack of funds for, say, expansion and modernization, etc. (While, of course, any attempt to e.g. lay off workers or close certain business locations is met with similar rhetoric and propaganda about “evil capitalists”. Cf. the discussion of VW below.)

However, there is also an implicit angle of “market prices are evil”, which does more harm than good. Even aside from the ethical perspective that any participant in a free market (as opposed to e.g. a monopolist, cf. below) should be allowed to offer his goods and services at whatever prices the market is willing to pay, market prices bring great benefits when we move beyond the short term (and often in the short term too, for that matter). For a first view, read any serious introduction to Economics. I explicitly point to the benefits of better allocation and better incentives, however, e.g. in that a supply deficit (relative demand) is a lesser problem with market prices than without, because the market prices (a) make it more likely that the existing supply goes where it brings the greatest benefit, (b) give incentives to increase production, which will work to close that supply deficit. For a business to charge market rates is not price gouging—it is sound business and something to the benefit, not detriment, of society and the economy.

Based on the market angle, we might even raise the question whether there can, at all, be something like an “unethical” or “unconscionable” price increase that might, then, maybe, be considered “price gouging”. The answer actually often is “yes”, because of how often market forces are reduced or eliminated by (most often) government intervention. In such cases, however, we have a business (and often a government owned/controlled business!) that abuses a situation created by the politicians. Consider e.g. a railway or telephone monopoly (both were once very common) dictated by the government: With lesser fears of competition, loss of customers, whatnot, the holder of such a monopoly can often raise prices in a manner that amounts to abuse, and often in a form that rules out options that someone in a more competitive environment would consider, e.g. to cut down on internal waste in the hope of fixing the balance sheet through less expenditure instead of more income. (Of course, the government and taxes can be seen as the ultimate in this type of price gouging.)

Worse, with the COVID-countermeasure era, we had cases like a vaccine oligopoly combined with attempts to make vaccinations mandatory—in other words, the customers must buy, and they must buy from a small number of government-appointed suppliers at the prices that these see fit to charge. Likewise, the COVID-countermeasure era points to another family of potentially actually illicit price increases, as when an incompetent government hands over excessive amounts of tax-payers’ money to various businesses by means of inflated prices. (As opposed to e.g. ill-advised subsidies, which are a problem in their own right, but which are hardly on topic.)

Of course, I cannot rule out that the COVID-countermeasure era and the ensuing price inflation contained complementary price gouging (in addition to “natural” price increases). However, if so, this was only enabled by the politician-caused price inflation. Without the price inflation, any attempt to hike prices excessively would have stood out like a skyscraper on the prairie; with price inflation, it is a skyscraper in Manhattan.

Upwards price fixing

Interestingly, farmers (other groups might exist) often see something reverse based on the same type of moralizing argument, e.g. in that it is not “fair” that farmers get so little on the market—ergo, we must fix prices for farmers so that they get more than the market would deliver. (Alternatively, but off topic, the same type of reasoning can bring other types of support, e.g. farming subsidies.)

This moves in the overlap between portions of the discussions of price gouging (above) and wages (below). Correspondingly, I will not go into detail, but I note that this too does more harm than good outside the farmer’s themselves, and that many of the problems that farmers have can be solved without engaging in price fixing. Note, e.g., the immense government-imposed obstacles and costs that U.K. farmers have to struggle with, as evidenced e.g. by “Clarkson’s Farm”.

Wages, salaries, etc.

Various types of remuneration for work (I will use “wage[s]”) seems to be another area exempt from both market forces and individual merits. In some cases, this is fairly obvious, as when a union-negotiated tariff uses criteria like length-of-employment for wages or dictates virtually flat rates based on position. (And, again, we have issues like incentives to not work hard and well and to not improve one’s own skills. Depending on details, there might even be incentives to prefer an illicit Monday off in order to get back into gear after the weekend. Etc.)

However, there are plenty of more subtle examples that implicitly show a similar disregard for differences in performance, markets, and whatnot.

For instance, there is an ongoing problem around U.K retailer Asda, where women are suing for more pay based on what men performing completely different tasks are being paid. (No one is forcing these women to work at Asda, or in their current position, by pointing a gun at their heads. They signed up voluntarily to work at a certain rate. If they do not like it, they can quit and go elsewhere, go on a strike, or switch to a more “male” job at Asda. The implications of the lawsuit are ridiculous, leaving both market forces and individual preferences aside.) Worse, I seem to recall that some similar lawsuits had actually already had success (but kept no links).

For instance, the idea that male and female tennis players be paid the same for winning majors regardless of who has what size of audience, who plays against what level of competition, whatnot, shows a fanatical take. As I suggested in some older text, the women should then hold their own tournaments entirely apart from the men, see how much these tournaments earn, and pay themselves whatever they feel that they can afford. (With similar remarks applying elsewhere, e.g. for soccer.) On the upside, they still allow the winner to receive more money than the runner-up, and so on.

For instance, the idea that wages should be subject to individual negotiation is anathema to many, even beyond union regulations. In particular, there seems to be no awareness of the risks involved in taking a hard line: If the one demands 10 grand more than the other per year, this might result in 10 grand more—but it might also result in a rejection. A worse consequence is that employers might find themselves implicitly forced to hand out extra money to existing employees when a new one is hired, should this nonsense be taken to its logical conclusion.

For instance, minimum wages very explicitly remove the value (up to a certain limit) provided by the worker from the equation—no matter how little value he brings, he must receive at least a certain amount of money for a certain time period. (To boot, often with disingenuous motivations, e.g. around someone having the invented “right” to a “living wage” or “deserving” to earn enough to feed his family—and never mind that he might be a teenager just looking to fill his CV with more than “went to school” or a secondary earner in a family just looking to cover a gap between expenses and the income of the primary earner.)

Volkswagen

2024 saw a problematic situation for German car-maker Volkswagen (VW). VW wants to find some way of increasing profitability and keep the business successful by closing poorly performing plants, reducing the number of employees, and/or reducing the wage level in Germany. Not only are the VW workers and unions opposed, which is only to be expected, but there seems to be a clear attitude from the government, and large parts of the rest of society, that VW would have a duty to keep all current plants open and all current employees employed—and to hell with business prospects. (Whether this supposed duty would extend to operations outside Germany is unclear to me. And, no, this is far from the first time something similar happens.)

A particular nuisance is the unword “sozialverträglich”, which seems to imply whatever the user wants it to (very Humpty-Dumpty), but effectively puts strong limits on what is considered “kosher” for a business to do—especially, when it comes to layoffs. Here, it would not be “sozialverträglich” to close anything down; ergo, VW must not do so. (And never mind that this might be more expensive to society in the long run than if decisions were made with a focus on the long-term success of the business.)

Market forces, pricing, and trade in fiction and a forest

The takes on e.g. market forces and pricing in fiction is often horrendously naive—and in a manner quite similar to what is shown in Leftist propaganda. A particular issue is an implicit idea that anyone would be “price gouging” (although that term is not typically used) who charges so much that not everyone can afford to buy a certain product; that it would, in some sense, be “unfair” when a scarce product is sold to those willing to pay more (instead of kept at a fix or old price on a first-come-first-served basis, distributed by lottery, whatnot); that any store/merchant/whatnot would have an ethical obligation to sell at whatever price the poor could pay (regardless of issues like profitability); etc. Works set in other worlds, alternate realities, or similar, are unusually likely to be afflicted—as, very unfortunately, are works for the young, who have not yet had a reasonable chance to build the knowledge or grow the intelligence needed to see how problematic and unrealistic such takes are.

Consider a very simple scenario, as might occur in, say, a Japanese “light novel” or some “young adult” fantasy work, of two villages, separated by a long stretch of forest and with little other “civilization” to be found within reasonable travel distance. As it happens, one of the villages produces a good that the other does not. An enterprising young man travels between the villages, buys the good at a price of X in the producing village and offers it for sale at 10X in the other. Cries of “price gouging” and whatnot ensue.

Such cries overlook several issues (without a claim of completeness) that make the superficially plausible claims, at such an enormous markup, wrongheaded:

1. No-one and nothing forces the young man to perform this travel and trade over doing whatever the other young men in the village do (e.g. alternating between chopping wood and drinking in the tavern)—and no-one and nothing forces anyone to buy from him.

   (Would a need out of medical reasons, to get enough food, or similar, amount to “forced to buy”, even absent, say, a literal gun to the head? Depending on definitions and takes on semantics, it might or might not, but it alters little in the big picture, because there would be no product to buy without the young man and his efforts.)

2. If market forces were allowed to do their job, the 10X would either be a fair price or there would soon be a drop in price through competition, as others could take up the same business model and, should the 10X be excessive, underbid him while still making a profit. Likewise, one or several producers might decide to cut out the middle-man and catch some of that markup. Likewise, if locals see that there is a market, they might attempt to produce locally for their own village. Etc. Indeed, if the price differential is sufficiently excessive, it might very well pay for the individual buyer to make the trip himself, even if he has no interest in engaging in trade, more generally.

   In contrast, if there is some type of artificial monopoly, some type of trade restriction, or similar in play, this could be different—but then the monopoly/whatnot is the problem and that is what should be attacked. (For instance, if the young man, for some reason, is the only one allowed to sell the good, other potential importers would face great obstacles and market forces might be correspondingly less effective in bringing imports up and prices down.)

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   Side-note:

   An interesting complication is when a more natural monopoly has arisen, say, that the young man has some particular skill that (a) no potential competitor has and (b) is needed for travel or trade between the two villages.

   Such cases must be judged on their individual merits, but the fact that the “buying” village would go without the good without him is relevant in a somewhat blanket manner. Likewise, the fourth item, cf. below, will often apply. Likewise, such natural monopolies are rarely complete and will either fade with time or see workarounds, e.g. in that such a skill can be developed by others and that the absence of that skill might be no obstacle to local production.

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3. Looking just at the price differential (here, 9X resp. a factor of 10) misses the costs, risks, and efforts involved: The time spent traveling creates an opportunity cost, in that the young man is not able to, e.g., earn money by chopping wood, and these costs must be covered by the price differential. There might be dangers on the road, e.g. wolves and robbers, which makes a premium over time and costs justifiable. If he uses a horse for transport, the horse brings costs for feeding and whatnot, there might be an initial investment to cover (or to repeat, should the horse grow too old, die, or be taken by robbers), and (again) there is an opportunity cost because the horse is not available for other work. There might be additional monetary costs on the way, e.g. in that someone charges a road or bridge toll somewhere or that one of the villages has an export resp. import fee of some kind. Depending on the good at hand, there might be a risk of spoilage that reduces the number of sellable items relative the number of purchased items. Etc.

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   Side-note:

   A more modern setting would introduce other costs and complications, including taxes on income/profits, VAT or sales tax, and the need to do accounting to a level acceptable to the government. In Germany, e.g., the government charges another 19 % on top of the “raw” sales price of most products (approximately 16 %, if look at the VAT padded price). Factor in other taxes and the government’s share of the price far, far exceeds those 19 % resp. 16 %. Then there are the costs caused by the government that do not actually earn the government money but still increase the price.

   But, no, greedy businesses are the big problem...

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   Only after factoring in such issues, is it possible to judge the price differential. Moreover, by the previous item, chances are that the price differential would turn fair in comparatively short order, if it was not so to begin with. (To boot, in a manner less subjective than if e.g. a buyer has a different view of the risk of being attacked by wolves on the way than the young man and his potential competitors have.)

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   Side-note:

   The very large price differential used for the example is deliberately chosen to make an accusation of “price gouging” superficially plausible. (Profit margins in e.g. a modern grocery store, in contrast, can be just a few percent of sales, with the store earning from a large turnover of goods rather than from a high profit margin per item.)

   Even such a price differential can be warranted, however, if the distance, the cost, the dangers, the whatnot, are large enough. Consider e.g. early Europe–Asia trade by sea and the enormous profits that were possible vs. the great risks, the great costs, and the long time between investment and payout. In the case of certain types of fiction, our young man might not just have to contend with the likes of wolves and robbers—but also demons, trolls, and ogres. Indeed, the fear of some such monster could conceivably make the number of potential merchants willing to brave the danger quite low, even if the monster did not actually exist, and the young man might, again, be the difference between having or not having access to the good at all.

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4. Even if the young man earns a fortune selling at 10X, this might be for the best for society at large relative a “too low” price—and, especially, a price that does not allow a profit after covering both trade/travel expenses and living expenses.

   The greater the markup, the greater the likelihood that (a) he can afford to hire helpers (or, e.g., buy more horses), (b) increasing the imported quantity at the cost of a lower markup still makes sense.

   We might then have a scenario where he hires a helper, doubles the quantity imported, and, to actually be able to sell the greater quantity, drops the price to 8X—while still increasing his overall profits. He is then happier because of the greater profits, the helper is happier because of the new job, the villagers are happier because of the greater availability and lower price, and the sellers/producers in the other village are happier because of the greater sales. (And this even when he, for one reason or other, does have a monopoly.)

   As time goes by, he might hire more helpers, import ever more and sell at lower prices, and, maybe, even open up other beneficial-to-society business ventures.

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   Side-note:

   It is conceivable that others are less happy, e.g. because the greater flow of the good from the one village to the other can reduce availability or increase prices elsewhere. However, for many goods, this will be no more than a temporary problem as the producers gain incentives to ramp up production when prices increase.

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   Side-note:

   The issues of risk and opportunity costs are smaller here, as the ability to earn enough to hire others depends more strictly on profit. They can still, however, be important both for the choice to continue with trade and for how much the employees must be paid to be willing to take up work. (Employees have their own risk aversion to overcome and their own opportunity costs to consider. At too low a salary, they might prefer to stick with wood chopping.)

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Money as the root of all evil

A frequent Leftist claim, misquoting the Bible, is that “money is the root of all evil”. In reality, money is a truly great thing (say, to facilitate exchanges relative a barter economy; read a book like “Wealth of Nations” for an in-depth discussion)—and the Bible condemns the love of money (or love of silver, or greed; cf. side-note). To boot, it does so in a larger context that might point to evils in a more limited sense of e.g. individual religious progress—as opposed to e.g. overall societal progress.

The trigger for this section, however, is something very different (if also with some relation to Ancient Greece)—an episode of “Krapopolis” (S01E12, “Buy Low, Sell Ty”; presumably, a pun on the main protagonist, king Ty[rannis], and the buy-low-sell-high idea):

Krapopolis has a barter economy and/or uses chickens as an informal and poorly working currency. (Which applies was not made entirely clear and the border between barter and a system based on some quasi-currency can be fleeting.) After meeting an Athenian, Ty is inspired to institute a formal currency—which he does in a very inept manner, by just making coins and declaring that from now on one coin equals one chicken. (Here and elsewhere with reservations for details and my memory. There might also have been some talk of meeting participants making agreements about prices more generally.) As will be clear from the below, the coins were not made in a manner that implied any inherent value or inherent scarcity in coins—much unlike the type of coins used in real-life civilizations from a similar time frame.

For some short time, things go well, with benefits like not having to drag around live (and potentially testicle pecking, according to one character) chickens and an easier handling of change. Then problems arise like Ty finding himself unable to pay for food because he is out of coins—which he takes as reason to simply mint more (channeling his inner Joe Biden), even in the face of warnings that this would lead to price inflation and hollow out the value of the currency (not necessarily phrased in these terms).

Exactly such price inflation and hollowing out of the currency follows, with side-effects like the fortune of one day being the petty cash of the next day.

The solution? Ty restores the “exchange rate” to one coin for one chicken by fiat, in a mixture of the institution of fiat money and (channeling his inner Kamala Harris) imposition of price controls. (Whether fiat money or price controls apply the more strongly depends on factors left unstated, including to which degree the original institution of money was fiat based, which is my impression, cf. above, but not entirely certain.)

So far, we have seen a poor implementation of money and might see the episode as a somewhat insightful critique of fiat money, inflation of the money supply, and/or the use of price controls over market prices. In this, it has some value from an Economics point of view.

However, other aspects of the episode involve the idea of greed as the root of various evils (which has some justification and is very compatible with Paul’s view in 1 Tim) and, unfortunately, that incorrect and harmful conclusion that money, per se, would be the problem. This includes an (illogical and moralizing) secondary story line about the purchase of a pub, the in-parallel destruction of Athenian civilization through having committed the same error as Krapopolis of just minting more and more coins (but seemingly misattributed to money instead of over-minting of money), and various remarks by scheming divinities at the end of the episode, which fail to properly draw the difference between money and love of money.

A particular point in these divine remarks is the fiction that the existence of money would make life less worthwhile because everyone would work so much harder than before in order to get money. This is a naive view. It is true that human life seems to have seen an increase in workload at some point, and one that has not yet gone away. However, this increase seems to stem from the switch from hunter–gatherer societies to agricultural ones, which is not truly related to money. (An indirect connection might be present in that the one type of society might have benefited more from a currency or quasi-currency, which might, in a next step, have increased the likelihood that one was used or the extent to which one was used. Even so, the increase in workload goes back to the switch of society.) To boot, Krapopolis (let alone Athens) already had a significant portion of this switch behind it.

At the same time, money has not only made the economy more efficient and saved work, in it self, but also enabled more economic growth than would have been possible without it. I doubt that many in the modern Western world work as hard as many past farm workers; the more progress, the less work is needed to maintain a given standard of living; and, should we actually work more today, any increase in work must be offset against the far, far higher standard of living that almost everyone has. (Also note a discussion of “relative wealth” and how the rich of yore compare with the “poor” of today—with a far more one-sided case applying when comparing the poor of yore with the “poor” of today.)

Excursion on other issues with price fixing

Price fixing comes with other issues, including some strongly overlapping with the discussion of wages above. For instance, if the price of a particular product is fixed by the government, this gives minimal incentives to improve the product over time. If anything, chances are that any opportunity to save costs of manufacture will be taken, which can then cause a worsening of the product—especially, in terms of manufacturing quality. What if, say, shoes are sold at a fixed and below-market price, and this causes them to wear out so much faster that the customers end up paying more than before, simply through having to buy more often? Likewise, a fixed price reduces the importance of individual variation in production, because what matters now is to get the product done sufficiently cheaply and/or in sufficient quantities, while aspects like quality, design, innovation, additional features, or whatever might apply to the product at hand, matter far less than before. Indeed, with non-trivially below-market prices, demand is likely to exceed supply by a mile, which implies that everything not disastrously poor that hits the market is likely to be sold. Competition by means of price is, of course, far less likely to matter: Going above the fixed price is not allowed, while the room and the incentives to go below it are minimal.

Other problems or “problems” yet include the creation of black markets. For the suffering citizens and the overall economy, black markets might be a part of the solution to the politician-created problems, but the politicians are likely to be strongly opposed and to react by increasing the efforts to enforce the price policy, which costs more money, and such money always, ultimately, is taken from the citizens.

Excursion on differences in preferences and their consequences

I often find myself annoyed over prices that strike me as “too high” for the reason that others seem to have different preferences than I do (their preferences cost me money)—and such differences in preferences are behind much of what can seem like misdevelopments on the business side, including “price gouging”, to others. In a simplified example, say that a market consists of a single business and ten potential customers, that one customer is willing to pay no more than 10 Euro for the product at hand, and that the other nine are perfectly happy to go to 20 Euro. Chances are that the price will be 20 Euro and that the one can take it or leave it: With nine customers at 20 Euro, we have a revenue of 180 Euro; with ten at 10 Euro, we have 100 Euro. Looking at profits (which is usually the interesting criterion) we see that this applies not only when the seller takes a loss per unit at 10 Euro but even when almost everything is profit. Take a cost-per-unit as low as 1 Euro and the second scenario leaves a very pleasing 90 Euro profit—but the first scenario gives us between 170 and 171 Euro profit, and will then still be preferred. A naive Leftist might now demand that the product still be sold at 10 Euro “so that everyone can have one” or at slightly above 1 Euro, because everything beyond a minimal profit is condemned as “greed” or, indeed, “price gouging”.

Of course, this is not limited to prices. What e.g. if there is some feature that most customers want, while a minority would prefer to see the feature removed in favor of another feature, a price reduction, or something else yet? What if the majority prefers a computer with a faster CPU and the minority one with more RAM? What if the majority prefers a car with lower fuel consumption and the minority one with a bigger trunk? Etc. (Here, too, competition and product diversity can come to the rescue.)

A great example is the infamous hotel mini-bar, with its equally infamous prices. (Indeed, it is only in the spirit of this text that I deliberately abstain from using the word “over-priced”.) If the prices are high, however, it is because sufficiently many guests make use of the mini-bar to justify that price level. Moreover, no-one is actually forced to use the mini-bar and no-one forces hotels to even install a mini-bar in the first place. Mini-bars merely provide an option that the guests can take or leave, depending on how they value cost vs. convenience at the time at hand. (Even someone who normally avoids mini-bars might make use of one if having arrived exhausted, late at night, hungry, and without the energy to leave the hotel for cheaper options—and be grateful for having the option.) If the prices are “too high”, it is the fault of the other guests.

The real problems begin when the majority is stupid, ignorant, outright mis-/disinformed, goes more by feeling than reason, etc.—which is often the case. This, however, is not a matter of “price gouging” or other unfair/unethical/whatnot practices, except in as far as businesses engage in, say, misleading advertising or other types of misrepresentation. If they do, this is both unfair and unethical, but it is also a problem in a different area.

Excursion on disregard for legitimate business concerns

An overlapping issue is a societal and/or political disregard for legitimate business concerns, including that of limiting costs and of avoiding decisions that cause disproportionate costs. (In which case, businesses can find themselves in the paradoxical situation that they can neither avoid otherwise avoidable costs nor raise prices that, except for calls of “price gouging” and/or the establishment of price controls, would be raisable.)

Consider an employer that has a locker room with showers for its employees (e.g. because the work is very physical or because of a need to change clothes on the premisses). Until now, the employer has only had male (or, vice versa, female) employees and locker room, showers, and toilets are only present in one common-for-all set. Now a woman applies for a job that will require access to a locker room (etc.). Look at this from a business point of view and note how the employer has choices like:

1. Turning her down in a blanket manner, which will risk an expensive lawsuit and one likely to be lost in many countries. (But note great differences in applicable laws.)

2. Hiring her and requiring her to use the previously male-only areas in a “unisex” manner. Not all women would be willing to do so, new legal risks appear, and some third parties might get involved with charges of “sexism” or “discrimination”.

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   Side-note:

   Such new legal risks can be e.g. a retroactive demand for a women’s locker room (etc.), e.g. objections from the existing male employees (and, no, women do not have a monopoly on objections in such regards), e.g. calls for damages because there was sexual misbehavior from a man towards the woman (or vice versa) in the locker room.

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3. Hiring her and finding some time-sharing mechanism to avoid inter-sex encounters in the areas at hand, which is likely to come with negative side-effects like delays in work and accidental encounters when someone forgets, is in a hurry, is delayed during a change of clothes, or similar.

4. Hiring her and spending a great amount of money on construction work to duplicate facilities.

   (With the additional complication that construction takes time, which could leave a time period where the woman either was not available for work or force other compromises, e.g. the above “time sharing”, during the waiting period.)

In the cases that involve a hiring, note the need to consider factors like (a) the extra efforts not being necessary if, instead, a man is hired, (b) that this woman might be the only woman ever to be hired (as opposed to just being the first woman hired), and (c) that she need not remain in employment for long (e.g. because she does not perform sufficiently well or because she finds a more interesting job elsewhere). Depending on circumstances, we might even have to make similar considerations for deliberately short-term employment, e.g. some type of internship, which can make the cost for construction work even more disproportionate, while not necessarily insulating the employer from a law suit, should a female candidate be rejected.

Now, none of these choices are very good and legitimate dissatisfaction can occur with any choice. (For instance, even if there is no lawsuit in the first case, we have to note that the result is to some degree unfair towards the woman, because she was not judged on her own merits.) The problem, however, is a blanket reaction from many, especially Leftists, that the employer would have a positive duty to hire the woman, take the construction costs, and not say one word in protest. (In some cases, assuming that she was otherwise the best candidate; in others, regardless of the other candidates, exactly because there previously only were male employees and/or “because diversity”.)

At the same time, the rejection in the first case (should that route be taken) is not rooted in immediate discrimination based on sex (a usually illegitimate criterion) but on discrimination on costs and/or other disadvantages that truly can affect the bottom line of the employer.

I leave unstated what the correct solution is, but I caution very strongly against the type of blanket reaction mentioned above—the employer has a legitimate business concern and this legitimate business concern must be given due weight and due respect.

Excursion on non-government actual price gouging

As noted above, something that might more legitimately match the label “price gouging” is often caused by government intervention. Further, examples of actually unethical business methods are given.

Unsurprisingly, then, something that might be labeled “price gouging” (or, without that label, still show similar problems) can also exist without government intervention. This, in particular, when market forces are otherwise artificially disabled (e.g. through cartels), customers are deliberately mislead or otherwise tricked, or the situation of the customer is abused in a manner that goes beyond the reasonable.

For instance, we might have an apartment currently rented at the market rate, with the implication that the landlord has nothing to gain from replacing the current tenant with another tenant also paying the market rate. (But he might have something to gain if someone else can be convinced to pay above the market rate, if he has some other intended use, say, own living, if he has some other reason to prefer another tenant, or similar.)

The current tenant, however, often has an over-average incentive to keep living in that specific apartment, e.g. that a move will increase his distance to work, that he might have lived in the apartment for decades and would feel uprooted elsewhere, or that he might have just a year or two to retirement and would prefer to find a new apartment and move once retired and having more spare time. If in doubt, moving brings costs, stress, and efforts that can easily be the equivalent of several months rent.

Let us now say that the landlord takes a “ten percent more per month or you are out” stance. Chances are that many would agree (at least for the time being), giving the landlord a surplus over the market rate of ten percent per month. If, however, the tenant chooses to move, the landlord gains nothing, and might even take a loss, as the next tenant might not be ready to move in by the time the original tenant moves out, as there might be renovation costs, whatnot. (While the original tenant, of course, has additional costs, etc., for the move.) The landlord might even recant, as he is better off with the old tenant and without the aforementioned costs and loss of rent.

At an extreme, we might even have scenarios where someone moves in at a certain rent and, as soon as he is settled, receives that “ten percent more per month or you are out”, in which case the original rent offer will usually have been outright fraudulent.

(Note how this moves on a very different level from the conclusion that the current rent, unchanged for years, would be ten percent below the market rate, followed by an attempt to bring the rent up to that market rate.)

For instance, assume that a taxi driver brings an old lady home, that the old lady finds herself short on cash and unable to pay the full amount, but that her husband is in the building next to the cab and merely needs to be notified of her arrival in order to cover the discrepancy. Assume further that the taxi driver charges the lady an outrageous amount to use his cell phone to phone said husband, while refusing to let her out of the cab and while refusing to himself ring the doorbell. (I once encountered this scenario, with reservations for exact details and my memory thereof, in Swedish news reporting. I do not remember the amount charged for the phone call, but it was truly outrageous.)

Here, as the event took place in the days before flat-rates became common, it might have been justified to charge the actual cost of the call or some guestimate thereof, but to over-charge in this manner is indefensible. The situation might even be viewed as extortion.

Considering the presumably low cost of the call relative the fare, the issue of good-will, and the cab driver’s own interest in resolving the issue, I might even have assumed that a non-shady cab driver would offer the phone for free—even without a flat-rate and even aside from free-of-charge possibilities like ringing that door bell. (But I would not see him as obligated to do so.)

Excursion on price increases to combat lack of demand

Basic economics teaches that when demand drops, so should prices. If prices rise when demand drops, then surely something is wrong—or?

Often it is, because (so it appears to me) many businesses have a knee-jerk reaction to increase prices as soon as there is a problem with profit and/or revenue, even when increasing prices is counterproductive. For instance, during the COVID-countermeasure era some landlords of office and other “commercial” space tried to hike rents with the motivation that some old tenants had gone bankrupt or moved out and what amounted to “We are sure that you appreciate our situation and that you, the remaining tenants, will now pay more to keep our profitability up. Thank you for your cooperation.”. But here we had an approximately fixed supply at a lowered demand, and the right approach would have been to lower rents to increase demand and get new tenants. (At least, if it was possible to keep the rents for the remaining old tenants fixed and only offer the cut to new tenants.) This the more so, as the remainers often, themselves, were struggling and might be pushed into dire problems, should they consent to the rent increases.

However, there are at least three factors to consider that can lead to (in some sense) legitimate price increases:

Firstly, increasing/decreasing the price will normally (but see “Thirdly”) lead to a decrease/increase in demand and a pure revenue calculation might point to “lower prices”. However, revenue is usually secondary to profits and profits must consider costs and not just revenue. Say that someone sells 10 units of some product at a price of 15 Euro per unit, that this is the optimal price to begin with, that the overall cost per unit is 12 Euro, and that demand suddenly drops to 8 units at that price. (And make the simplifying assumptions that cost per unit is independent of the number of units, that there is no VAT or other taxes, whatnot. For simplicity, I will usually leave “Euro” out.)

Now, the original profit was 10 * (15 - 12) = 30 and the new 8 * (15 - 12) = 24 (at a revenue of 150 resp. 120). Assume further that a drop in price to 13 would restore demand. We would then have a profit of 10 * (13 - 12) = 10, which just makes matters worse, even though the revenue increases to 130. In contrast, a price increase might still help profits, e.g. if an increase to 17 would drop demand to 5, for a profit of 5 * (17 - 12) = 25, even though revenue drops to 85.

Secondly, we have to differ between a fixed supply and a variable supply. With the office space, supply is more-or-less fixed through the combination of building times/costs for new space (if hardly relevant to the case discussed) and the running costs of existing space (e.g. taxes, maintenance, heating, common areas that cannot be closed off). Yes, having empty office space typically costs less than having rented office space, but it is not free of charge, and unrented space, absent the income from rent, comes with a loss. Taking some space off the market entirely, to reduce supply, would not bring any real benefit and supply is, then, approximately constant.

In contrast, the example from “Firstly” hinges on supply being reducible. Because supply can be lowered, the seller is not limited to manipulating price and hoping for the right demand, and the second variable of supply opens possibilities. If supply had been fixed at 10 at a cost of 12 Euro per unit, revenue would have had to be optimized to overcome overall costs of 120 Euro, which would have made lowering prices to 13 and restoring demand to 10 the best choice among the three scenarios given (lower to 13, keep constant, increase to 17).

Thirdly, there are some products, groups of customers, or combinations thereof, that lead to paradoxical results. For instance, it is not unheard of that a price increase also increases demand, and a drop in demand could then be countered with an increase in price to restore demand. (But this would typically imply that prices, in some sense, were too low before the original drop.) This can e.g. apply to some status products that seem more exclusive (and, in the eyes of some, therefore more desirable) at a higher price, and to some “gift shop” products because a “too cheap” product might seem unsuitable for gifting.

Excursion on Trump’s medicine edict

As of May 2025, Trump has announced price controls of sorts on medicines, attempting to reduce the extreme U.S. price levels to those of the countries with the lowest levels.

My feelings about this are mixed: On the one hand, these extreme U.S. price levels are very hard to defend and do an enormous amount of harm. On the other, what Trump does only fights the symptoms, not the underlying disease.

The key issue is that the U.S. situation has arisen from hampered market forces, skewed incentives, and similar—including the fundamentally flawed ObamaCare. (Which not only failed to solve the already large market problems of the day, but distorted markets and incentives even further, notably, through reducing consumer choice and incentives to be economical.)

The true solution, then, is to straighten out markets, reduce government interference, weaken quasi-monopolies, increase consumer choice, give incentives for all parties to make better choices, etc. This includes some maybe not entirely obvious issues, like an undue “big pharma” influence on both medical education and various governmental agencies and the need to reduce this influence.

Whether the intervention by Trump will be a net positive or negative is yet to be seen, but, again, it fights the symptoms and not the disease. In particular, it increases government interference even further, which makes it a two-edged sword. A critical difference compared to e.g. rent controls is that supply deficits for medicines are rare (in the developed world) and that making more of existing medicines is usually cheap and fast, implying that the types of supply problems caused by rent controls are unlikely to occur. Likewise, the loss of profit for “big pharma”, much unlike land lords, will mostly cut into the excessive profits caused by prior artificial market distortions. A potential long-term problem, however, is that a lowered profitability of medicines could reduce incentives to develop new medicines.

Excursion on motivations behind accusations

While various types of accusations/propaganda (e.g. that we would have price inflation because of price gouging and greedy capitalists) are usually unwarranted, unfair, and doing more harm than good, the motivations behind them can vary.

For instance, an accusation of price gouging could be rooted in a wish to deflect blame for rising prices from the government (the Left, whatnot) to those “greedy capitalists” or, even, a wish to have an excuse to move further towards Socialism and/or a plan economy by gaining a (pseudo-)justification for price controls. However, it is also very, very possible that a speaker with a too limited or faulty understanding of economics genuinely believes in the accusation—especially, when told what to believe by someone with a greater perceived expertise. (While failing to consider that even a genuine expert could be lying and that many alleged experts fall short of actually being experts.) Scenarios are even conceivable (whether likely, I leave unstated) where someone draws on models and prognoses of “what would happen if we do X” and reacts with denial when X is done and the outcomes are different (e.g. in that “Our models showed that printing a gazillion additional dollars would lead to an increase in price inflation of 1 percentage point. The actual increase is 10 percentage points. The models cannot be wrong, because they are scientific; ergo, some greedy capitalists must be price gouging.”).

From another angle, some accusations might serve to change behaviors in an unnatural way, e.g. through some unethical shaming angle or through, equally unethically, turning public opinion in an unfair manner that would force a change in behavior (say, that some store chain might prefer to sell at a loss in the short term over falling victim to a propaganda-induced customer boycott).

Looking at underlying goals, they could conceivably be more subtle than to just, e.g., divert-blame-so-that-I-can-be-reelected. For instance, if the government runs the money presses and prices predictably rise as a consequence, the government will have less spending power than if prices remained constant. (Ditto, the recipients of new government handouts.) This could then give strong incentives to prevent natural price increases by instituting price controls or exerting public pressure per the previous paragraph.

Excursion on accusations as a cause of excuse making by businesses

I have long been annoyed at what appears to be excuse making and/or cheap attempts at manipulation by businesses when it comes to prices, say, to make gullible customers willingly pay more than they, in some sense, should. While such an explanation might well apply, chances are that the true motivation is often a type of self-defense, that the apparent excuse making serves to blunt or preempt unfair accusations of price gouging.

The first encounter that I can remember might have been in the late 1990s, when someone tried to justify high prices for new models of CPUs by claiming that these high prices were necessary to finance development costs and whatnots. In effect: These high prices serve the common good by allowing the development of newer and better CPUs; ergo, they are morally justified. (Or, maybe, even: Anyone buying at these high prices is supporting that common good.)

This, however, is a half-truth at best: Yes, the profits from higher prices helped finance further development and without the expectation of such profits prior development would have been prioritized to a lesser degree. (The exact results of this are hard to predict, as so much depends on exact circumstances, but we might e.g. see a scenario where the time between new processor architectures and/or more fine-grained “lithography” is considerably longer.) No, the true motivation is something else—profit maximization through price/market segmentation.

Such pricing should be a near given and considered morally justified in its own right, and being upfront about it should, in any sane world, be unproblematic. With the enormous problems with Leftist propaganda and fundamental misunderstandings of how free markets and capitalism work, however, this could open the doors for exactly the type of idiotic or intellectual dishonest attacks in which the likes of Kamala Harris engage.

This is the greater a shame, because such effects actually demonstrate how free markets benefit society and further that common good: The “Yes” part above arises through the price segmentation. (More generally, it is profits and hope for profits that drives investment, that creates businesses and employment, that brings products to the market, etc.—while price controls, plan economies, etc., have a long history of doing the opposite. Cf. e.g. other parts of the overall text.)

A further negative is that whenever someone engages in such excuse making, rather than being upfront about markets and profits, it risks a further shift of Overton windows and whatnots in a Leftwards direction.

Excursion on a poor understanding and Bill Mauldin

Some of the writings of Bill Mauldin are illustrative with regard to what is or is not price gouging or otherwise unethical in business, and to how someone can get things wrong.

Notably, “Back Home” contains a long discussion of various experiences and problems around cars in the WWII and post-WWII U.S.—including such true problems as a dishonest garage ignoring an easily fixed issue in favor of more expensive interventions for a made up issue, relying on the customer’s lack of deeper understanding of cars, or selling a used battery as new. (The former is problem so long-standing that it has matched the stereotype of a shady garage owner throughout my own lifetime.)

In other cases, however, he wants to cast blame for what is essentially an issue of demand exceeding supply—and seems to believe that price-binding schemes would somehow be for the best, rather than something that makes matters worse. For instance, he notes that much of the U.S. auto industry was geared at producing tanks (and, presumably, other types of vehicles for military use), creating a shortage of civilian supply of new cars. Why, then, would it be objectionable if a car a year or two old costs more on the second-hand market than it did new? (The more so, as he seems to neglect issues like a reduced purchasing power of the dollar, which could make nominal prices inherently misleading.)

Say that I have a car and that I have the choice between keeping the car and selling the car. If I do sell it, the price achieved must be sufficiently high to offset what I lose from no longer owning the car—including that (in Mauldin’s setting) I have a lesser ability to find a replacement car of my own than I normally would, and might then have to pay more, myself, or go without a car entirely: The aforementioned shortage of factory-new cars might make such a car unrealistic, and other owners of older cars go through similar calculations and are less likely to part with their cars for my benefit at a given price. To boot, the overall supply of cars and/or cars of a certain “drivability” might be dropping through accumulated wear-and-tear, rust damage, car crashes, whatnot. What, then, am I supposed to do? Just sell my car because someone wants to buy it, even when I do not want to sell? (Be it at all or at the current price. Also note the impossible situations that would arise, where I could then apply the same rule to the buyer and demand to buy back the car, whereupon he could do the same, etc. Also note, here and elsewhere, complications like destroyed price signals and market mechanisms, resource misallocation, and whatnot—including that a higher price might make the repair of “worn-and-torn” car profitable when it would have been junked at a lower price.)

Likewise, say that I put up a car for sale and that two potential buyers show up. If the one offers to buy the car at “book value” (by some standard) and the other offers that and another grand on top, why should I not go with the highest bidder? After all, I am not forcing him to buy. (Here, we also see a specific example of allocation issues: It might be that the one bidder had more money, but it might also be that he only had a greater need or saw some commercial opportunity that made the car more desirable for him than for the other bidder. If I, say, flip a coin and take the book value from the winner, the decision might be suboptimal in such regards.)

Or consider used-car dealers (the prices of which Mauldin finds objectionable): If a used-car dealer has to pay more to bring in supply, why should he not sell at a commensurately higher price? The alternative would be to forgo supply and, therefore, have fewer cars to sell—and the more so for cars still in good quality, with which the old owners are less likely to part ways at a sub-market price. The customers might see lower prices as a result, but what good is this if there are no cars to have at those prices? (If the used-car dealer applies an incommensurate price increase, some room for debate might exist, but, even then, he is not forcing anyone to buy and it is in his own best interest to stick to market prices. If the increase is incommensurate, chances are that it was the original owner, not the new one, who was shafted—possibly, because he flipped a coin and went by book value.)

In the border area between unethical cheating and ethical supply-and-demand pricing, Mauldin complains about circumventions of price fixing through mechanisms like having the car, as such, at a government-approved price but charging a very large extra for e.g. a radio. Here, it is easier to see how the unwary can get a too black-and-white view of the situation, but we must ask why such trickery is applied. The answer is often exculpating: the market price of the car is above the government-approved price, and such trickery allows a circumvention of harmful and destructive regulations without having to enter the black markets. Abstain from this trick (or suppress it with the force of the law) and what happens? Chances are that, as above, the car will not be available for purchase because the original owner does not wish to part with it at whatever lower price the used-car dealer can now offer.