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  • rmacculloch

Price gouging, kindness and Coronavirus

Auckland Mayor Phil Goff is urging businesses to stop price gouging and "act responsibly" as the city enters its fourth day in level 3 Covid-19 lockdown. Why do people hate price gougers in times of disaster and crisis? The Harvard economist, Julio Rotemberg, argued that the reason is "regret-based anger".

He gives an example of buying a snow shovel around the time of a blizzard. An individual doing so regrets not having bought a shovel earlier. This regret is accentuated if she learns that the price has been increased in response to the storm. Price-setters do not all respond in the same way to disasters. Some firms, like the ones that Mayor Goff is referring to, raise their prices. Others, by contrast, improve the terms that they offer buyers. This diversity of reactions suggests that suppliers vary in their altruism.

The extent to which some firms are genuinely altruistic whereas others are not, is revealed in times of disaster and crisis. As suggested by the title of a news story that ran in the Deseret Morning News in Utah in the United States, “Disasters reveal the stuff we’re truly made of”.


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