If you have one of only a small subset of programmers talented in ABCD, and you charge $2000/day for them, are you gouging your customers?
If you want to build slack into the system, allow people to make profit off of extra inventory. You want the hardware store to carry a couple crates of batteries in the back in case of emergency? Let them charge enough money in the once-in-a-lifetime storm to make it worth their while.
Taxis take risks riding in storms, if you want them to be available, let them make money.
Actually this is usually because of local anti-price gouging laws pushed by ignorant people such as the author of the above piece. You can thank these people for mile-long gas lines, and general shortages all around, because to them MORALITY has nothing to do with the consequences of disrupting supply in an environment of sudden excess demand. Its all about feeling good and punishing people for following market incentives to alleviate shortages.
And, Kahneman argues, when basic economic theory conflicts with peoples' perception of fairness, it's in a firm's long-term interest to behave in a way that people think is fair.
I guess it's just splitting hairs... On the one side is the classical economist saying, "Customers shouldn't be screaming in indignation over this" which is my reaction to the author's rant. The other is the behavioralist which is saying, "This is just bad business if customers feel slighted."
That would be fine if the story stopped there. The balance could be found out by experimentation between many companies and pricing models. But it doesn't stop there. Regulations are brought in and you damn well believe that they are enforced ruthlessly even in supposedly free-market friendly 'red' states.
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If you have one of only a small subset of programmers talented in ABCD, and you charge $2000/day for them, are you gouging your customers?
If you want to build slack into the system, allow people to make profit off of extra inventory. You want the hardware store to carry a couple crates of batteries in the back in case of emergency? Let them charge enough money in the once-in-a-lifetime storm to make it worth their while.
Taxis take risks riding in storms, if you want them to be available, let them make money.
There's a reason that stores don't charge you extra for batteries, flashlights and water before a storm: you will be pissed off, and not come back.
Actually this is usually because of local anti-price gouging laws pushed by ignorant people such as the author of the above piece. You can thank these people for mile-long gas lines, and general shortages all around, because to them MORALITY has nothing to do with the consequences of disrupting supply in an environment of sudden excess demand. Its all about feeling good and punishing people for following market incentives to alleviate shortages.
"Why Economists Love Price Gouging, And Why It's So Rare": http://www.npr.org/blogs/money/2012/10/29/163861383/why-econ...
And, Kahneman argues, when basic economic theory conflicts with peoples' perception of fairness, it's in a firm's long-term interest to behave in a way that people think is fair.
I guess it's just splitting hairs... On the one side is the classical economist saying, "Customers shouldn't be screaming in indignation over this" which is my reaction to the author's rant. The other is the behavioralist which is saying, "This is just bad business if customers feel slighted."
That would be fine if the story stopped there. The balance could be found out by experimentation between many companies and pricing models. But it doesn't stop there. Regulations are brought in and you damn well believe that they are enforced ruthlessly even in supposedly free-market friendly 'red' states.