Monday, September 26, 2005

Price Gouging: Who's Fault is it Anyway

Due to various reasons, gasoline price at the pump has risen a lot of late in the US. Politicians of course are the very first ones who come out and complain about this price gouging behavior on the part of gasoline suppliers. Russell Roberts at Cafe Hayek has this very good post on price gouging.

What I find a bit strange is that not too many commentators have analyzed the issue from the demand side. Why blame it on suppliers alone?

Suppose all car owners, fearing to pay a high price for gasoline knowing something has happened that will casue its price to rise, start using public transport rather than their own cars when they go to work, when they run their errands , when they do their grocery shopping. Then I believe that no matter what happens on the supply side that will cause a rise in gasoline price, the magnitude of increase will be minimal if it happens at all due to the incidental inward shift of the gasoline demand curve as more and more people switch to public tranport. So why blame it all on the part of "greedy suppliers"? Demanders could have done the adjustment to the negative supply shock on gasoline equally well.

In other words, for all those critics that have their fingers pointed at the "greedy suppliers of gasoline", they should have their fingers pointed in reverse direction as well. Demanders of gasoline are equally at fault in not making less use of gasoline just when its supply is experiencing some kind of negative shock.

So from now on, suppliers of gasoline should organize themselves and start blaming the demanders of gasoline for failing to conserve on the usage of gasoline just when its supply is reduced temporarily for various reasons.

1 comment:

VC said...

actually, oil is too cheap.