Does price gouging exist?

Discussion in 'Economics' started by c_323_h, Jun 10, 2006.

  1. c_323_h


    My past economics professor said no. I forget his reasoning. Opinions?
  2. Absolutely yes.

    One classic form is to lock a large customer base into proprietary technology...
    And then charge 200-300% more for parts and service.

    Dell is a master at this.

    For a power supply that costs them maybe $10 wholesale...
    And maybe $50 retail for equivalent at any computer store...
    They will charge you $140... plus exhorbitant shipping charges.

    It took years for people to catch on...
    But Dell will never recover it's once good reputation.

    As someone who owns 6 Dells...
    I will never do business with them ever again... and it feels good.
  3. how are you going to not do business with them, if you own 6 of their machines?

    Price gouging exists all over New York City, especially in the financial district. They get away with it because they can. They also seem to have a willing supply of rich kids who don't mind paying 3 bucks for a bottle of water and such.
  4. c_323_h


    is ferrari price gouging?

  5. I don’t think Ferrari is because it’s not a market for real people. Someone buying a Ferrari does not worry about the marking up as much as something needed for the common man. To totally gouge someone it’s got to be something you truly need and not a major luxury. In theory anything can be a gouge but a true gouge is for something you’re forced to buy to proceed in daily life. The dell example is better but most companies do what he is complaining about. You can mess up your bumper on a 25k car and pay 700 for the plastic bumper not even painted.
  6. Covert


    Your econ prof said that there was no such thing as price gouging because the free movement of prices also changes the relationship of supply and demand. For instance, a supplier of a good raises his prices too high, demand for that good will decrease, and his business will suffer. In the Dell example, this is happening with HoundDog; he has decided that the price of the power supply is too high and he will not be buying from Dell any more. If enough consumers come to this reality, then Dell will lose many more customers as a result of this and it will hurt their bottom line; they will be forced to lower the price of this component (assuming that this is the only reason for the loss of business) in order to get their business back. However, if there is an alternative (HP IBM ect) gouging probably cannot exist because the consumer has a choice and can go elsewhere.
    The Ferrari is definitely not a gouging example because competition exists in the luxury sports car market. If one Ferrari dealer was charging 2x more than another dealer simply because of location or some other factor, this would be an example of a form of price gouging.
  7. HAL 9000

    HAL 9000

    Ever seen Total Recall?

    Cohaagen charged inhabitants of mars for the air they breathe.
  8. agpilot


  9. I started writing a reply citing the price of gas at the pumps here in Canada, which can swing (literally) 15% intraday depending on whether it's rush hour or not (these swings are not related to the price of the physical commodity). Late at night, prices spike hard. One hour away from downtown, prices are much lower.

    But then... what is price gouging anyway? The above post points out the problem. Let's say there's a big concert in a remote rural area, and it's the middle of the summer. The first semi-trailer loaded with bottled water arrives at the site and suddenly there a flash flood and the road is washed out. The gear has already been set up and the bands and many of the audience have already arrived, so the concert goes on and the only guy who has water starts charging $7/bottle for it. Is that price gouging?

    I'm not sure that it is! Because there's a limited supply and high demand. Isn't that right? Econ guys can weigh in and set me straight. Somehow I feel that price gouging, if it exists, would have to have something to do with collusion...
  10. c_323_h


    I don't think it would be price gouging it someone is willing to pay 2x. He wouldn't be charging that much if he knew nobody is willing to pay.

    I remember watching a special on TV about "How Price Gouging is Good." After Hurricane Katrina, a man from a neighboring state bought as many generators as he could, loaded them is a UHaul trailer, and drove to New Orleans to sell them. He was charging outrageous amounts of money for them. The police arrested him for "price gouging." When the TV reporter asked what the flood victims needed most they responded "GENERATORS!" among other things. If the flood victims were willing to pay, I wouldn't consider this price gouging. Now both the victims and the seller are screwed, instead of both being better off if he sold the generators.
    #10     Jun 10, 2006