The Hidden Shortages of the Market Economy

Research output: Contribution to specialist publicationArticle

16 Downloads (Pure)

Abstract

If you think shortages—in goods like toilet paper, meat, and masks—came in with the pandemic, think again.

Shortages are periods during which demand exceeds supply, and they’re an inescapable feature of all markets, all the time.

When an investor bids up the price of Apple stock because none is available at current prices, that’s a shortage. When a homeowner receives multiple bids for her home, that’s a shortage. When there are “only three left in stock” on Amazon and four users click “buy,” that, too, is a shortage.

We don’t notice these quotidian shortages because sellers usually respond to them by raising prices. The price of Apple stock jumps, the home sells for more than it listed, and Amazon’s dynamic pricing algorithms regret to inform you that “the prices of some items in your cart have changed.”

But price increases don’t make shortages go away. They just ration access to the shortage good to those who have the greatest willingness—which often means the greatest ability—to pay.

That’s a problem, because ration pricing concentrates wealth in the hands of sellers. We know that because the prices sellers charge before a shortage manifests itself must be calculated to cover costs, otherwise sellers wouldn’t quote those prices. When sellers go on to jack up prices in response to a shortage, they must therefore enjoy a windfall: profits in excess of what they need to be induced to bring their goods to market.

The pervasiveness of shortages, and the ration pricing that comes with them, makes markets fundamentally exploitative. But the only way to induce firms to engage in queue pricing may well be to embrace that ultimate progressive villain: God.

Original languageAmerican English
Specialist publicationLaw and Political Economy Blog
StatePublished - Jun 3 2020

Fingerprint

Dive into the research topics of 'The Hidden Shortages of the Market Economy'. Together they form a unique fingerprint.

Cite this