How busting price gougers makes shortages worse
Politicians love to issue press releases saying they nabbed another heartless price gouger who ripped off customers during a recent spate of bad weather/emergency/other supply chain crunch.
But as Cato’s Ryan Bourne and Brad Subramaniam write, the very laws the pols use to tackle price gougers only serve to make shortages of essential goods and service even worse. They pick up on research from the early stages of the coronavirus pandemic, and how rushes on hand sanitizer and toilet paper got worse thanks to price controls:
The long and short is that consumers in states with pre‐existing price controls searched most intensely online for hand sanitizer and toilet paper. This suggests customers learned from previous experience of these price regulations’ effects, with the higher search levels reflecting greater hoarding and panic buying in anticipation of shortages to come. As the authors state, this implies that longstanding anti‐price gouging legislation is even worse for economic welfare than we might think. The anticipation of shortages actually compounds shortages as consumers become more “experienced,” with excessive and fruitless searching for products the wasteful result.
Prices are information. They tell us a lot about what’s gone into a good or service, how scarce it is, quality, and so on. Meddle with the information – through price controls, anti-price gouging laws, and so on – and government conditions people to expect shortages.
The result: panic buying, hoarding, and…shortages. Plus preening pols talking about how they busted a price gouger. The wheel of pain keeps turning.