Radio: Residents in hurricane-affected states are complaining of ‘price gouging.’ What is it?

HORSLEY: Nobody likes rising prices, especially in the middle of a natural disaster when people are stressed. But economist Michael Giberson says, those high prices can serve some important functions in times of scarcity. For example, they can encourage conservation.

MICHAEL GIBERSON: On the consumer side, the higher price encourages consumers to think twice before they buy that next gallon of drinking water, for example. Maybe they can get by with three instead of five or 10. So that means there’s – could be more on the shelf for the next customer that comes along.

HORSLEY: Giberson, who’s with the free-market think tank the R Street Institute, also says high prices can encourage businesses to get cranking faster to address the shortages that a natural disaster causes, just like surge pricing at Uber helps bring out more drivers.

GIBERSON: On the supply side, a higher price not only is a signal that some good is in greater need than before, it’s also a reward for anyone who responds to that signal.

HORSLEY: Giberson notes that when Hurricanes Gustav and Ike hit South Carolina back in 2008, some gas station owners said they closed their doors rather than pay extra to have fuel trucked in and run the risk of being accused of price gouging. Obviously, that’s not good for anybody. So as angry as people might be about high prices, in some cases, the alternative could be worse.

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