Friday, January 16, 2009

A Theoretical Question

A hurricane hits the Gulf Coast. Supply chains are disrupted, and will likely remain that way for days.
The Home Depot store in the hardest-hit area doesn't raise its prices immediately before or after the hurricane. Their shelves are quickly emptied.
Let's say that another retailer called "Big Box", located next door to Home Depot, doubles The Price Of Everything in their store. They still have many of the items (like flashlights, batteries, diesel generators, etc.) that are in high demand after a hurricane. Big Box keeps the high prices in place until the replenishment system returns to normal.

People are outraged. Shortly after the storm, customers arrange a protest.

With which store should the customers be angry?

After you've had time to think about it, click here for more info on the origin of the question....


Stephen M. Smith said...

I thought we were all supposed to be mad at FEMA. Doesn't the Constitution state somewhere that the federal government's job is to protect people from bad weather?

Mark said...

Interesting question.. technically you can't be mad at either. No store guarantees they will have stock and no store guarantees their prices - that is what free enterprise is for.

However I know which store I would shop at in the future.

mjewkes said...

The ethical behavior, if we acknowledge that the store is a member of society, and not just an impersonal supply/demand machine, is for the store to maintain their standard prices, but limit purchases per household.

Raising prices is taking advantage of a disrupted situation, whereas giving your stock to hoarders is not socially responsible.

Mike K said...

Something similar happened in the UK a couple of years ago: Back in 2000 a wave of fuel protests caused a nationwide petrol shortage. Many petrol stations ran dry but a few garage owners took advantage and inflated their prices to what they thought the market would bear. They still sold their petrol at their inflated prices, and made a good profit in the short term, but that angered many locals, who then stayed away from these petrol stations after the crisis had ended. Some of the petrol stations actually shut down, too.

When there's a crisis people generally put their differences aside and pull together. Those who take advantage other people in the crisis are generally hated by everyone else, and when all returns to normal (assuming it does), they get ostracised by the rest of the population.

Dr Ralph said...

Trading on other people's misery, even if technically legal, is reprehensible. While the owner may have the right to gouge his "customers," they have the right to take exception to it and act accordingly (within the law).

If Big Box's manager/owner thinks he/she can lower prices once the situation normalizes and just go about business as if nothing had happened, he/she is a fool and deserves to be driven out of business by those taken advantage of.

To expand this further, if Big Box is a chain and the local manager made the decision to jack up prices independently, he'll likely find himself out of a job, not praised by the home office, since his behavior will most certainly give the company a public relations black eye, one not limited to the local store's customer base.

Allowing profit to overrule all other criteria is the surest sign of immorality I know of.

As to the sneer about FEMA, the current low state of this organization can be directly laid at the feet of the incompetence and malfeasance of the hacks put there by the outgoing administration. I hope the writer never finds himself in a situation where he loses everything through no fault of his own.

Allowing a rigid ideology to justify human suffering reflects poorly on you, sir.

Suzette Watkins said...

I wholeheartedly agree with mjewkes & Dr. Ralph.

Jos Metadi said...

I agree with Mark about not technically having the right to be mad at either store for doing entirely legal things.

I think Big Box is actually doing the community a better service in this example. By raising the cost of goods, you lower demand, and make it more likely that the supplies will actually get to the people who need them most instead of the people who just want extra.

A person who already has 2 flashlights is less likely to buy another for $50 than a person without any.

Home Depot, by maintaining the same price, does nothing to decrease demand. Therefore runs out much sooner, and the supplies go to those who show up first rather than to those who would value them the most. This reduces the efficiency of supply distribution which is a poorer service to the community.

So the question is, do you hate companies more for making profit than you value the efficient distribution of goods to the people who need them. I'll side with better service.

Tim G.

Dr Ralph said...

Jos -- you and I've got the "right" to be mad (or not) at either or both of these fine establishments. People get mad for the darnedest reasons. Who would deny them their anger?

Question: are you suggesting price gouging is nothing more that a means of more efficient distribution?

I think your argument is backwards: during times of extraordinary unrest, someone with $50 is more likely to buy $50 flashlights that someone with only $5, regardless of who needs the damned thing more. One could argue the person with only $5, faced with no other means of getting a needed flashlight, increases the efficiency of the distribution system by stealing the flashlight, either from Big Box or Mr Fifty Bucks. Both arguments make about as much sense.

By the way, for the record, that last remark in my previous post was not directed at Whited Sepulchre.

Jos Metadi said...

Dr. Ralph,

I didn't say price gouging is "nothing more than a more efficient means of distribution". What I am saying is that aspect is more important than concerns of fairness or petty jealousy over profits. Sure, none of us like to be taken advantage of, but the truth of the matter is our feelings are less important than results.

Socialist/communist systems have been and always will be less efficient than free market systems for the simple reason that there is no better allocator of resources than each person determining what is most important to them and how much they are willing to pay, and each seller determining what they are willing to accept in payment.

And if you're concerned about the people with $5 dollars not getting things, you should be working on making more resources available, so that price can decrease without running out of supply.

You threaten stealing, but the free market system will actually produce less thievery since the people most desperate for the flashlights are more likely to get them, verses simply the first people in line getting them.

I will wager on the free market system every time. History bears witness.

Tim G.

Dr Ralph said...

Jos - I'm a pragmatist: the free market model generally produces better results than a command economy model, but there's no inherit virtue in the free market: if it gets the job done, swell, otherwise I see no point in pursuing it as an end unto itself.

I agree with you, let's work to make $5 flashlights available all around. But the question on the table was what happens when Hurricane George hits and Big Box suddenly starts charging $50 for those $5 flashlights.

Your arguments are fine until the 150 mile-an-hour winds are blowing, the flood waters are rising, and Big Box is ripping you off for a lousy flashlight. Sitting and shivering in the dark is liable to change your take on economic theory.

Does Big Box have the right to sell $5 flashlights for $50?


Do I have the right to be pissed and organize a boycott of Big Box once the floodwaters reside?

You bet.

What Big Box must do is decide whether the short-term profit is worth the long-term loss of goodwill which will surely occur should they jack up their prices.

Because none of us exist in a vacuum.

TarrantLibertyGuy said...

Argh! I hate being busy and getting behind on reading and posting... Here you go again, Dr. Ralph. 'Big Box' (read: Wal-Mart) is the easy target for all you Dr. Ivan Ralphsky Von Marxengels out there.

Actually, the converse of your argument would be - if 'Big Box' does admirable things in the face of disaster, then we should be justified to anti-boycott it. Right? That is, be an extra good customer!

The Washington Post (you trust it, right?) wrote this a week after Katrina:

"Wal-Mart's response to Katrina -- an unrivaled $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals and the promise of a job for every one of its displaced workers -- has turned the chain into an unexpected lifeline for much of the Southeast and earned it near-universal praise at a time when the company is struggling to burnish its image."

What do you know... Free market driven, "Big Box" was the hero, while "Big Boss" (read: government) was hugely ineffective and horribly inefficient. Was WMT's actions self-serving (good pub, keeping employees on staff, getting rid of old merchandise as a charitable contribution)? WHO CARES?

As I recall, WMT had supply/water laden trucks going down to New Orleans the day after and was stopped by FEMA and initially turned away. Heck of a job, Brownie!

Dr Ralph said...

TLG - We've missed you! Glad you've jumped in.

This may shock you, given my undeserved reputation, but I more or less agree with you. (Cue sounds of mountains falling in sea.)
If the Free Market improves our lives, great. If the Government does, too, great. Whatever works.

What I said about allowing a rigid ideology to justify human suffering applies to me, too. Despite what folks think they know about me, I'm basically an agnostic pragmatist.

Wal-Mart did an outstanding job in the Katrina disaster, for which they deserve high praise. FEMA, run by an unqualified Republican hack and made a stepchild to Homeland Security, did an atrocious job. Heck of a job, Brownie!

Does that mean a better run FEMA has no role in future emergencies? Not to my mind. Does it mean FEMA is the only component to disaster relief in the future? Same answer.

As regards your "anti-boycott," in the sense that Wal-Mart improved their corporate image amongst a lot of people who viewed them with scorn and suspicion, you could say they indeed enjoyed an "anti-boycott."

Did they do it just to improve their image? I doubt it. I'd like to think they recognized, as mjewkes said, they are a member of society, and not just an impersonal supply/demand machine.

That doesn't negate their profit motive - and yet I didn't hear that they were charging $50 for the $5 flashlight, which is kind of where this discussion started.

TarrantLibertyGuy said...

Alright! We're ideological bros now!!

I'm sure WS will put something up soon that will allow us to YELL at each other again soon. :-)

The Whited Sepulchre said...

In the event of a disaster, would you go back into the store that has empty shelves after disasters? Or would you go into the one that had what you were looking for?

One per household? One per business? What about the size of the household? What if some people have zero flashlights, and others already have 5 or 6?

Mike K,
So who is providing the greater service to the community? The people with no flashlights available? Or the people who can still sell you a flashlight?

Dr. Ralph,
May I suggest that you read "The Price Of Everything" by Russell Roberts? He will calm your troubled soul.

You enjoy going into empty stores?

Jos Metadi,
We're not worthy of your presence here among us.