What is price gouging and how is it different from typical inflation, dynamic pricing, or the economics of supply and demand?
In: Economics
You’re a gas station operator in Kansas.
A tornado comes through town one fateful May evening, kills three people, demolishes 73 houses and 12 businesses (including the other gas station across town), and knocks out the power grid to the entire town.
The next morning you go to work and change the price of gas from $3.27 a gallon to $9.75 a gallon. You’re not going to miss a shipment or anything, you just know that desperate people might need to fill up cars and backup generators and you’ll have a demand spike today.
This is price gouging. It’s not a macroeconomic trend across the entire country like inflation, and it’s not surge pricing or widespread demand – it’s localized profiteering in a specific region in response to a specific event/situation that has made the market suddenly uncompetitive.
A company has been gifted a local monopoly, and they abuse it.
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