I think price gouging is evil and goes against free market and decency.
Here is a truth I routinely teach my students: there is no such thing as “price gouging”.
Whenever two parties enter into a financial transaction, both parties are better off, as long as there is no fraud or coercion involved.
If that were not the case, the party that is not better off would simply walk away.
If Amazon prices a product at an unreasonable price, nobody will buy it.
If somebody buys the product, they did so because either it was the best price they could find, or they value the convenience or fast shipping more than the cost savings of buying it elsewhere.
Either way, Amazon cannot force someone to pay more for a product than the product is worth to the purchaser.
I agree with your explanation, and it is true in general. However, there may be situations when there is no fraud or coercion, but there is deception, collusion, manipulation and lack of transparency which may put one side in disadvantage in the transactions.
There is no issue with Amazon pricing its products as they choose. However, the allegation is that Amazon actively was involved in forcing merchants that use their platform to raise the prices or keep them above certain price points or face not favorable consequence. Maybe this too is ok for Amazon to do as the owner of the marketplace. But lack of transparency of such schemes makes it deceptive practice and not puts buyers in disadvantage. If this indeed is true, the information revealed will better equip buyers in making decisions whether to enter the transaction or not. In other words, if merchants are forced to keep prices high, it may be possible to the same product to be available for better price elsewhere, maybe merchants' websites.
I agree, in part.
Deception of any kind, as part of a financial transaction, is fraud.
Collusion is generally illegal, unless it’s collusion with the government (collusion with the government is legal, but represents the worst type of collusion, imho).
Manipulation in a financial transaction would generally be fraud or coercion.
Lack of transparency would be a gray area. If there’s a defect in my product that I know about but don’t disclose, that’s fraud. If I know that my competitor is about to release a new product that’s going to make mine obsolete, I might slash my prices to reduce my inventory, but I have no duty to disclose my reasons for doing so.
BTW, I am not defending or accusing Amazon in any way, shape, or form. I’m just trying to provide some clarity about terminology.
I always bristle when I hear the term “price gouging” (because it generally implies a falsehood about free exchange). That’s why I usually take the opportunity to explain free exchange (and the fact that both parties are better off, if the exchange is truly free of fraud or coercion).
Thank you for explaining in details! I understand better now. Makes perfect sense.
this is a great point, although when you own the entire market you get to control the price like we see with diamonds.
This also allows others to commence business but that is costly and something I am doing currently in sports nutrition supplements.
Owning the market would conceivably allow the producer to maximize producer surplus and minimize consumer surplus. In other words, charge the highest possible prices consumers are willing to pay. (As stated above, they can't charge more than consumers are willing to pay.)
However, doing so would send a strong price signal to entrepreneurs, telling them that there is an excellent opportunity at hand, namely to develop a substitute or competing product.
In other words, maximizing prices invites all sorts of competition.
This is why so-called exploitative monopolies cannot endure long term, unless they have government regulations in place to keep would-be competitors from the entering the marketplace.
That is right in general. I think why people argue against that is when you integrate "time" into the equation.
We have a monopoly media landscape here in Germany. The public media collects a coercive tax to which you cannot say "no" by law. Even though they raised the fees over time this did not produce a competition since there is only one public media organization. All others are private ones. Since there is this fee there is not much need for competition amongst the public ones themselves.
The private classic media is to be said in the hands of corporates. I tend to the side that this represents indeed monopolies. Since this is being seen broadly as such, you are right when you say that these monopolies produce competitors. They are now all over the place in the Internet. But then you are confronted with the monopoly of google. Since google (and its bought companies) manipulates what things can be found and since the average media user needs to cope with ever more shifting and changing media offers he might not be able to catch up. But catching up on important information is crucial, right?
In order to compete with a monopolist you need to be known. To be known nowadays seems a lot harder than in the past, I suppose. To become a known competitor you need media. If media is dominated by few monopolists you might only get to know a competitor by what you are provided with to find in the Internet through the will of the monopolists. ... But then this will is not omnipotent, and it cannot control everything (or so I hope and think).
I found competitors myself but I would say that in order to compete with the monopolists they need to become more broadly known themselves. ... I am leaning towards the small and medium competitors instead having another becoming huge competitor (like the one founder of the youtube channel "Triggernometry" who says they want to become a "media empire"). I support them while they are not :)
But probably I have some flaws in my thinking. I am not overall sure. I just think that my and the older generation has a hard time to catch up on good competitors since information flow seems to be too fast. Maybe, there are too many small and not enough medium competitors.
Come to Australia where Banks, Supermarkets and Media have monopolies :(
What is the regulatory situation related to those industries?
Long term, monopolies need government-induced restrictions on entry to endure.
If competitive markets exist, incumbent monopolies will eventually be dethroned.
we don't have any regulations in place like in the US. Murdoch owns most the media here unlike the US where the US takes legal action against media.
I believe that since the financial crisis in 2008, people have been afraid that companies will become too big to fail and that even one is in danger of going under, that it will be rescued by government measures and compensated for by austerity policies for individual citizens.
Another fear is that individuals who want to set up their own business will not be able to compete with a corporation and that the retail sector - with the exception of the food industry - will die out as a result. The reason, they say, is that retailers can't keep up with the prices of the big players. I think what people fear and also reject is that when it comes to competition, they only see those who have enough power and influence themselves as capable of competing, which in turn makes the individual entrepreneur with a shop, for example, a dying species. But perhaps this has always been an illusion, even when the grocery or general shop was still common when it comes to pricing.
As far as the media are concerned, for example, it is said that the public media organisations are a monopoly in our country. We pay a compulsory tax for public service media. How would you see that?
I am more concerned about actual government bailouts than fears about bailouts. Yes, fears about bailouts might hinder some otherwise productive activities, but actual bailouts reward mismanagement and prop up businesses that are not genuinely creating value for consumers.
Typically, what’s happened (with “too big to fail” business) is the government regulatory apparatus has stifled competition within the given industry, allowing mismanaged companies to grow ever bigger because would-be competitors are locked out by onerous regulations. That allows poorly managed companies to grow bigger even though they should be continually shrinking into irrelevance (and being slowly replaced by entrepreneurial firms finding better ways to satisfy consumer wants).
I think I understand. Since I'm not really well qualified in these matters, I can only fall back on what I repeatedly and increasingly perceive, across all sectors of the economy. The state regulatory apparatus does indeed seem to me to be a major problem, as even with its best intentions it excludes competitors through, as you aptly point out, strict regulations. I don't know the facts, but it seems to me that companies are all treated equally in terms of the stringency of regulation and compliance and no good distinction is made based on the size and shape of the company.
A rather trivial example, but maybe that's what you meant:
A few years ago, all retail shops were required to install electronic cash registers in their shops in order to standardise tax documentation. If it was just this one item, you could say that the small retailer needn't be upset about it. However, it is in total what makes entrepreneurship and its foundation impossible or difficult, both in terms of the procurement of technology and equipment in a company and in terms of bureaucratic and safety-related official requirements. Added to this are various compulsory memberships in associations and co-operatives. (My own solution to the problem of small companies would be to just guarantee them a separate department on the regulators side in order to meet their circumstances and treat them differently. But I would need to look that up in order to find out if my assumptions are correct).
If you add it all up, an entrepreneur who complies with all these regulations needs a considerable part of his turnover for all these regulations alone. It seems to me that treating everyone equally is not appropriate here. But perhaps small businesses are so insignificant in politics that little attention is paid to them. However, this is at odds with what I have experienced with regard to audits of small companies by the social security and tax funds. They are very meticulous here.
I agree that companies which miss manage their customers needs need not to be protected.
P.S. Since my own competence lies somewhere else and I deal with what I face as problematic on another level, I would like you to support my newest blog post, if that what I express there, meets your sets of values.
Also what a lot of people fail to understand is that over 60% of sales on Amazon are from third party sellers. They all play the supply and demand game to make more money. Sometimes Amazon will be involved as well and then it's just turns into a game of who can price it lower. There are softwares that will reprice items to make it the best price. You can also be patient and your products will sell, some people just get impatient.
Well said