Comments on: Becker and Posner Mull Price Gouging

By: Paul Gowder

Paul Gowder — Thu, 03 Nov 2005 16:46:01 +0000

Oh, also, I’ll bet my bottom dollar that if anyone actually proposed an excess profits tax, Posner and his econobot buddies would oppose it. Because, after all, “a rational company would anticipate the excess profits tax and undertake no efforts to supply extra goods in a disaster.” Yada yada yada etc.

By: Paul Gowder

Paul Gowder — Thu, 03 Nov 2005 16:44:09 +0000

I still think Posner’s just flatly wrong about the gas example. Price gouging only acts to ration use if elasticity of demand is high. Gasoline, being a necessity in the most normal times and an urgent necessity when one is e.g. trying to flee a hurricane, is going to have low-ish elasticity of demand. So people will buy just as much (or almost as much: they might skip a pleasure trip or two) gas notwithstanding the price increase. This is supported by the huge precentage profit increases of all the gas companies last quarter, which were easily as high as the increase in the prices, suggesting that prices and profits increased in a direct relationship. If people bought significantly less gas because of the “rationing,” you would expect profits to not increase so much.

By: Joe Miller

Joe Miller — Thu, 03 Nov 2005 15:32:43 +0000

I enjoyed Steve Shavell's recent paper on the topic. It's entitled "Contracts, Holdup, and Legal Intervention." You've probably already seen it. In any event, one can read the abstract and download the paper here.