Marginal supply can come way in advance, well before the emergency, because of anticipation of future ability to raise price. It doesn’t have to be a reactive thing where the price rises first and the extra supply appears afterwards.
Short-term gasoline availability after a natural disaster is a good example. Very high prices do not actually lead to more supply, because transportation constraints are binding, and the road crews don’t get any of the increase in prices. In a model world, it’s good, the gasoline vendors pay some of their earnings to the road crews to prioritize their (very valuable) goods. In the real world, the supply chain is too long and interconnected for price signals to change much in terms of availability.
Over longer timeframes, and for more normal goods and situations, the model is very powerful, and price fixing is extremely harmful. I’m not supporting rent control in any fashion. In fact, I’m not exactly supporting gasoline price limits in an emergency, just pointing out that the usual arguments for price flexibility may not apply.
For even more clarity: I don’t think the line of argument (high prices motivate supply) is valid for this particular case, but I do NOT mean to say that price-fixing is actually justified. It also doesn’t increase supply, and it imposes arbitrary government involvement in private affairs, in a way that usually outlasts the emergency. Slippery-slope arguments are ALSO somewhat weak, of course—I don’t know of an obvious killer argument in either direction. And that’s mostly my point with this comment.
Can you give an example?
Marginal supply can come way in advance, well before the emergency, because of anticipation of future ability to raise price. It doesn’t have to be a reactive thing where the price rises first and the extra supply appears afterwards.
Short-term gasoline availability after a natural disaster is a good example. Very high prices do not actually lead to more supply, because transportation constraints are binding, and the road crews don’t get any of the increase in prices. In a model world, it’s good, the gasoline vendors pay some of their earnings to the road crews to prioritize their (very valuable) goods. In the real world, the supply chain is too long and interconnected for price signals to change much in terms of availability.
Over longer timeframes, and for more normal goods and situations, the model is very powerful, and price fixing is extremely harmful. I’m not supporting rent control in any fashion. In fact, I’m not exactly supporting gasoline price limits in an emergency, just pointing out that the usual arguments for price flexibility may not apply.
For even more clarity: I don’t think the line of argument (high prices motivate supply) is valid for this particular case, but I do NOT mean to say that price-fixing is actually justified. It also doesn’t increase supply, and it imposes arbitrary government involvement in private affairs, in a way that usually outlasts the emergency. Slippery-slope arguments are ALSO somewhat weak, of course—I don’t know of an obvious killer argument in either direction. And that’s mostly my point with this comment.
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