Saturday, August 27, 2011

Walgreens price-gouging bottled water in anticipation of Hurricane Irene

This afternoon, a Walgreens in Manhattan was selling small bottles of water for $5.49 each:

Walgreens price-gouging bottled water

(Photo by me.)

IN THE COMMENTS: We discuss whether price-gouging is good or bad.


XWL said...

People should be penalized for planning poorly (though not for excessive alliteration).

From a 2003 post by Glen Whitman at the Agoraphila blog:

"There is another economic argument in defense of raising prices during a crisis. Even if the higher price does not attract greater supply to the market, a higher price for the fixed quantity assures that the goods are allocated to their highest-valued uses. When the price is kept low, the first consumer to walk in the door is more inclined to buy a large quantity when a small quantity would do. Perhaps he’ll buy bottled water not just for drinking during the hurricane, but for watering his indoor plants. As a result, the next consumer finds himself unable to buy water for drinking, even though he’s willing to pay much more than the fixed price."

When demand is high, and supplies are short, it is in the public interest for the price to rise.

Besides, it's not like you can't still run the tapwater and fill up every available empty container in your home while preparing for a weather event like a hurricane.

Hurricanes are relatively predictable now, not precisely, but close enough that an area likely to be effected usually has about a week to be wary.

Monday there was already good indications that many storm tracks were showing NYC in danger, I'm sure there was plenty of water on the shelves then.

Maybe my perspective is different, given that the most likely local disaster, earthquakes, strike without warning, so being constantly prepared for at least a week without power and water is assumed 365 days a year, not just when storm tracks show an approaching problem on the horizon.

John Althouse Cohen said...

I've heard the arguments for why it's supposedly a good thing, and I don't think they make sense. In a situation like this, the poor need water just as much as the rich do.

Your quote refers to "willingness to pay" as if it were equivalent to need, but this doesn't make sense when there's severe inequality of wealth.

I understand the general theory of the free market and the law of supply and demand. It's well-known why those are efficient. But it's also well-known that there are sometimes "market failures." And I say, the fact that the price of water and flashlights can be jacked up way beyond normal market prices in an emergency is a market failure.

Normally, complaints about the poor or middle class not being able to "afford" what they "need" are highly suspect, because those words are so vague and malleable. But when a natural disaster is suddenly impending, the concept of "need" becomes very similar for everyone. Everyone needs a supply of non-running water. Everyone needs non-perishable food. Everyone needs a light source in case the power goes out. And so on. So the fact that there's dramatic inequality of wealth means if prices are jacked up too high, these goods will inefficiently be funneled mostly to the rich, whereas they should be broadly available to everyone.

My economics professor gave this example: there's a hurricane, and the local price of flashlights goes up to $100. My prof said this is a good thing. Why? Because if Person #1 needs the flashlight because of a power outage, while Person #2 (who isn't experiencing an outage) just wants to buy a flashlight because their child loves to play with it, Person #1 is the one who'll buy it. The $100 will only be worth it to Person #1, not to Person #2.

But there's no reason to assume that. Person #1 might not be able to afford it (especially if there's also price-gouging happening for other necessities) and might feel compelled to just accept being in the dark. And if Person #2 is rich, they might feel it's worth $100 for a toy their kid loves. So inequality of wealth throws the whole thing off. I don't remember my prof having any answer to this.

And by the way, if you're still unconvinced by all this and you think price-gouging is great, then fine — go out of your way to shop at Walgreens because they're doing such a wonderful thing here! But I think most people find price-gouging instinctively repulsive. And that itself is a negative, since the company's reputation can be damaged.

John Althouse Cohen said...

It's also interesting that the libertarian economist Tyler Cowen thinks price-gouging is a serious problem (though he grudgingly supports repealing laws against it on "freedom" grounds). That link is from the post you linked to.

XWL said...

It's a tough and frightening situation to be in, hoping for the best but anticipating the worst. You have my sympathy as you ride out the expected storm.

I still think raising prices is both rationale, justified, and not as great of a burden on consumers as you imagine.

Folks have choices, if you know your resources are limited, then plan accordingly, or pool your resources with neighbors, or seek shelter at a charity/church. Everyone has options, even the poorest of folks in NYC still have quite a bit of agency over the choices they make, and even with a looming crisis, have ways to make themselves safer, though with less margin for error and less comfort than those with more available capital.

Gouging might cause more longterm harm to some business in ill will than it makes up for in short term profit, that's for each individual business to decide.

Collusion, unregulated monopolies, government imposed price controls, and rent seeking are far more worrisome and constant sources for potential market failures than temporary profiteering in anticipation of a crisis.

Richard Lawrence Cohen said...

Maybe Walmart's corporate office will learn about the price-gouging, and the manager responsible for it will learn the economic consequences of the idea.

Peter Hoh said...

What's the regular price at Walgreens?

From my experience, most of Walgreen's prices are significantly higher than what I pay at a big grocery store or at Walmart or Target.

I recently bought a 24 pack of half-liter bottles on sale for about $5, if I recall correctly.