Everything You Always Wanted to Know about Gouging (but Were Afraid to Ask): A Response to Ramsi Woodcock

Good scholarship makes you change your mind, but great scholarship

makes you think differently. As usual, Ramsi Woodcock's article "The Efficient

Queue and the Case Against Dynamic Pricing", is great, because it made me

think differently about price regulation. Woodcock observes that prices not

only communicate information, but also redistribute resources. Sometimes,

producers change prices in response to competition or changes in the cost of

production. But other times, they change prices just because they can.

When prices reflect the marginal cost of production, consumers benefit

from market efficiencies. But when prices reflect a surge in demand, they

simply transfer resources from consumers to producers. Of course, when

prices increase dramatically in response to a sudden surge in demand,

consumers object and the government steps in to prevent price gouging.

Obvious price gouging is now the exception that proves the rule of

ecommerce. Suddenly, producers can change prices instantaneously in

response to tiny changes in demand, extracting the largest possible surplus

from consumers, without them even realizing it. Business has always been the

art of screwing your customers without them realizing it. Ecommerce just

made it a science.