Three Reasons Price Gouging Is A Good Thing, And Shouldn’t Be Illegal

Hurricane Harvey has proved to be one of the worst storms in years, and caused billions of dollars of damage. Hundreds of thousands of people have been forced out of their homes by rising floodwaters and basic necessities are in short supply.

In other words, all the ingredients are present for a phenomenon labeled by detractors as price gouging. It’s the temporary increase in prices when supply falls during an emergency.

A brilliant video from Learn Liberty explains three reasons why price gouging is a good thing:

Price gouging isn’t mandatory

Just because someone is charging an excessively high price doesn’t mean that the price has to be paid.

If the customer feels that price is too high, they can walk away. The only reason a customer would consent to paying is because he or she believes the product is worth more than the cash that he is giving up. This is still a voluntary interaction, and price gouging doesn’t force anyone to pay higher prices if they don’t want to.

Supplies are preserved with price gouging

Opponents of price gouging rarely stop to think what would happen if it didn’t take place. If suppliers didn’t raise their prices to conserve their supply, it would lead to shortages and hoarding.

During an emergency, a gas station might be able to ration their supply by raising prices to $10 a gallon. Only those who truly needed gasoline would buy from that station and they would only buy as many gallons as they absolutely needed.

On the other hand, if the station charged $2.50 a gallon, customers would fill their tanks – whether or not they truly needed to – and the station would rapidly run dry.

Price gouging prevents that scenario from taking place and protects precious resources for those who truly need them.

Price gouging creates incentives to increase supply

For every action, there is an equal and opposite reaction. When demand increases, price rises to conserve supply. When prices are high, supply increases to meet demand.

If cases of water bottles are being sold for $40, that creates a profit incentive to bring in more cases. Suppliers will purchase cases of water in other areas and bring them to the emergency zone to make a profit. Then, to incentivize customers to purchase from a new competitor selling the same product, those new suppliers will have to lower prices.

Eventually prices will normalize. Everyone will have been able to purchase the water they need. Price “gouging” has in fact increased supply and created a market that otherwise wouldn’t have existed!

Thanks to Learn Liberty for the original video that inspired this article:

Image via Twitter user Ken Klippenstein.

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Wilson most recently served as the Director of Social Media on the presidential campaign of Gary Johnson and Bill Weld.He started in politics by founding the political advocacy organization A Libertarian Future after the 2012 presidential election. Its Facebook page now reaches tens of millions of people a month, and the website received more than 10 million pageviews in three years.Wilson has also launched a successful digital marketing firm with a range of domestic and international clients. After living in Europe intermittently throughout college, he currently resides in California - strictly for the climate.

Latest comments

  • Yeah right , unless you’re poor…rationing is a better way

  • sometimes you are so far out there, you make a guy with a Wellington boot on his head look like a reasonable candidate for president

  • If something is a necessity (like water and perhaps gas) and you don’t have the money to pay what is being asked, that’s not efficient. Free markets don’t work well with necessities because people will pay whatever they have the ability to pay rather than what they think the item is actually worth. If the only way you can get a case of water is to pay $50, if you pay it, that fact only reflects one, your biological need for water, and two, how much money you happen to have. No one will choose the medical risks of prolonged dehydration if they have the money to pay–however much it is.

    Price gouging allows some to artificially skew economic choices and redirect spending to areas that people would otherwise not spend as much on. Price increases that reflect increased costs to acquire more supply are something different.

  • In a libertarian society people wouldn’t sell their neighbors items they need to survive. It would be given with no obligation to return the favor. Corporations, on the other hand, only operate for profit.

    Help America remove the corporations and #VoteLibertarian

  • I think you guys at Jack news fell out of your chairs and hit your heads. All this sounds great on paper. But if you think that it would work out that way in real life then you’re all crazy. How is anyone with low income going to afford this? The answer is easy they can’t. I saw the results from price gouging first hand after storm sandy in NJ. Trust me price gouging is illegal for a good reason.

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